3Rd Global Cryptoasset Benchmarking Study

Total Page:16

File Type:pdf, Size:1020Kb

3Rd Global Cryptoasset Benchmarking Study 3RD GLOBAL CRYPTOASSET BENCHMARKING STUDY Apolline Blandin, Dr. Gina Pieters, Yue Wu, Thomas Eisermann, Anton Dek, Sean Taylor, Damaris Njoki September 2020 supported by Disclaimer: Data for this report has been gathered primarily from online surveys. While every reasonable effort has been made to verify the accuracy of the data collected, the research team cannot exclude potential errors and omissions. This report should not be considered to provide legal or investment advice. Opinions expressed in this report reflect those of the authors and not necessarily those of their respective institutions. TABLE OF CONTENTS FOREWORDS ..................................................................................................................................................4 RESEARCH TEAM ..........................................................................................................................................6 ACKNOWLEDGEMENTS ............................................................................................................................7 EXECUTIVE SUMMARY ........................................................................................................................... 11 METHODOLOGY ........................................................................................................................................ 14 SECTION 1: INDUSTRY GROWTH INDICATORS .........................................................................17 Employment figures ..............................................................................................................................................................................................................17 High-growth enterprises ....................................................................................................................................................................................................18 Financial performance of service providers ..............................................................................................................................................................19 SECTION 2: MINING, THE BACKBONE OF THE INDUSTRY ...................................................21 Hashing as a business ...........................................................................................................................................................................................................21 Where are we on PoW’s energy consumption? .......................................................................................................................................................26 Mining pools ..............................................................................................................................................................................................................................28 Mining hardware manufacturing ....................................................................................................................................................................................32 The financialisation of mining............................................................................................................................................................................................34 SECTION 3: THE OFF-CHAIN STORY ................................................................................................36 On-chain and off-chain stories .......................................................................................................................................................................................36 Off-chain cryptoassets and fiat currency support ................................................................................................................................................37 Off-chain activity providers ..............................................................................................................................................................................................39 SECTION 4: PROFILING CRYPTOASSET USERS ...........................................................................44 User number and activity .................................................................................................................................................................................................. 44 User geography .......................................................................................................................................................................................................................45 User types ..................................................................................................................................................................................................................................46 SECTION 5: REGULATORY AND COMPLIANCE ..........................................................................49 Compliance benchmarks.....................................................................................................................................................................................................49 Authorisation of service providers ................................................................................................................................................................................52 AML and KYC procedures .................................................................................................................................................................................................54 Regulation impact: redefining geographies ...............................................................................................................................................................56 SECTION 6: IT SECURITY ........................................................................................................................ 59 The development of best market practices ...............................................................................................................................................................59 Resources allocation to IT security ................................................................................................................................................................................60 Security audits .........................................................................................................................................................................................................................61 Insurance ....................................................................................................................................................................................................................................62 SECTION 7: BALANCING BETWEEN INTEGRATION AND INNOVATION .......................64 Enhanced transparency and compliance ....................................................................................................................................................................64 A decoupling of functions across the value chain ..................................................................................................................................................65 The growth of ‘decentralised finance’ ..........................................................................................................................................................................65 APPENDIX ......................................................................................................................................................67 Miners’ influence ....................................................................................................................................................................................................................67 Operational risks for miners .............................................................................................................................................................................................67 Additional risks for miners .................................................................................................................................................................................................68 Operational risks for service providers .......................................................................................................................................................................69 Future developments ...........................................................................................................................................................................................................70 3rd Global Cryptoasset Benchmarking Study FOREWORDS The rapid pace of innovation and increased investment in the cryptoasset industry is increasing the need for information analysing these developments. With the publication of the first edition of the Global Cryptoasset Benchmarking Study three years ago, the CCAF set out to progressively track and take the pulse of this nascent industry by transparently collecting, analysing and disseminating knowledge about cryptoassets. Similarly, the 3rd Global Cryptoasset Benchmarking Study seeks to shed light on the market dynamics of the cryptoasset industry since late 2018. The report collates data from entities operating in four main segments of
Recommended publications
  • Central Banks and Digital Currencies a Revolution in Money
    Central banks and digital currencies A revolution in money omfif.org Wednesday 28 April 2021, 12:00 UK/07:00 ET All sessions will take place live unless stated otherwise. 12:00-12:05 Welcome address: OMFIF 12:05-12:30 Keynote in-conversation: The first retail CBDC John Rolle, Governor, Central Bank of the Bahamas 12:30-13:30 Panel I: Retail CBDCs: policy implications and rollout strategies • The need for retail CBDC from a policy perspective • Programmability and its potential impact on monetary and fiscal policy • Addressing disintermediation concerns • Implementation strategies: bringing in banks and fintechs • Legal implications and common standards Speakers: Hanna Armelius, Senior Adviser, Payments Department Analysis and Policy Division, Sveriges Riksbank Neha Narula, Director, Digital Currency Initiative, Massachusetts Institute of Technology Jose Fernandez da Ponte, Vice President, General Manager Blockchain, Crypto and Digital Currencies, PayPal Atul Bhuchar, Executive Director & Group Payments Head, DBS Bank 13:30-13:45 BREAK: On-demand presentation: CBDCs and digital identity 13:45-14:45 Private roundtable: Introducing a digital yuan (invite only) Mu Changchun, Director, Digital Currency Research Institute, People’s Bank of China 14:45-15:00 BREAK: On-demand presentation: Solving offline functionality omfif.org 15:00-16:00 Panel II: The payments revolution from the consumer’s perspective • PsPs and CBDC landscape: How best to combat financial exclusion • Addressing consumers, merchants and sectors that lack digital infrastructures
    [Show full text]
  • Money Laundering Using Cryptocurrency: the Case of Bitcoin!
    Athens Journal of Law - Volume 7, Issue 2, April 2021 – Pages 253-264 Money Laundering using Cryptocurrency: The Case of Bitcoin! By Gaspare Jucan Sicignano* The bitcoin, one of the most discussed topics in recent years, is a virtual currency with enormous potential and can be used almost immediately with no intervention from financial institutions. It has spread rapidly over the last few years, and all financial and governmental institutions have warned of the risk of its use for money laundering. The paper focuses on this aspect in order to understand if any purchases of bitcoins, using illicit money, can come under the anti-money laundering criminal law. Keywords: Bitcoin; Money laundering; Italian law; Cryptocurrency. Introduction The bitcoin1 is a virtual, decentralised and partially anonymous currency based on cryptography and peer-to-peer technology2. With bitcoins it is possible to buy any type of good or service securely and rapidly. Transactions need not be authorised by a central entity; rather, they are validated by all users of the platform. The system is totally secure, since it is practically impossible to hack the protocol3. Bitcoin has been much criticised over the last few years; it has quickly become public enemy number one for everything from financing terrorism to drug dealing to money laundering. It has also recently been said that bitcoin would pollute the planet due to the resources required for mining4. This paper will attempt to analyse in depth the relationship between the bitcoin and money laundering in Italian law. It will analyse the warnings issued by authorities in various sectors, as well as the opinions expressed in Italian legal literature regarding the possibility of committing money laundering and self- laundering crimes in various operations carried out using virtual currency.
    [Show full text]
  • Crypto Research Report ‒ April 2019 Edition
    April 2019 Edition VI. “When the Tide Goes Out…” Investments: Gold and Bitcoin, Stronger Together Technical Analysis: Spring Awakening? Cryptocurrency Mining in Theory and Practice Demelza Kelso Hays Mark J. Valek We would like to express our profound gratitude to our premium partners for supporting the Crypto Research Report: www.cryptofunds.li Contents Editorial ............................................................................................................................................... 4 In Case You Were Sleeping: When the Tide Goes Out…............................................................... 5 Back to the Roots ............................................................................................................................................. 6 How Long Will This Bear Market Last .............................................................................................................. 7 A Tragic Story Traverses the World ................................................................................................................. 9 When the tide goes out… ............................................................................................................................... 10 A State Cryptocurrency? ................................................................................................................................ 12 Support is Increasing ..................................................................................................................................... 14
    [Show full text]
  • Beauty Is Not in the Eye of the Beholder
    Insight Consumer and Wealth Management Digital Assets: Beauty Is Not in the Eye of the Beholder Parsing the Beauty from the Beast. Investment Strategy Group | June 2021 Sharmin Mossavar-Rahmani Chief Investment Officer Investment Strategy Group Goldman Sachs The co-authors give special thanks to: Farshid Asl Managing Director Matheus Dibo Shahz Khatri Vice President Vice President Brett Nelson Managing Director Michael Murdoch Vice President Jakub Duda Shep Moore-Berg Harm Zebregs Vice President Vice President Vice President Shivani Gupta Analyst Oussama Fatri Yousra Zerouali Vice President Analyst ISG material represents the views of ISG in Consumer and Wealth Management (“CWM”) of GS. It is not financial research or a product of GS Global Investment Research (“GIR”) and may vary significantly from those expressed by individual portfolio management teams within CWM, or other groups at Goldman Sachs. 2021 INSIGHT Dear Clients, There has been enormous change in the world of cryptocurrencies and blockchain technology since we first wrote about it in 2017. The number of cryptocurrencies has increased from about 2,000, with a market capitalization of over $200 billion in late 2017, to over 8,000, with a market capitalization of about $1.6 trillion. For context, the market capitalization of global equities is about $110 trillion, that of the S&P 500 stocks is $35 trillion and that of US Treasuries is $22 trillion. Reported trading volume in cryptocurrencies, as represented by the two largest cryptocurrencies by market capitalization, has increased sixfold, from an estimated $6.8 billion per day in late 2017 to $48.6 billion per day in May 2021.1 This data is based on what is called “clean data” from Coin Metrics; the total reported trading volume is significantly higher, but much of it is artificially inflated.2,3 For context, trading volume on US equity exchanges doubled over the same period.
    [Show full text]
  • Pwc I 2Nd Global Crypto M&A and Fundraising Report
    2nd Global Crypto M&A and Fundraising Report April 2020 2 PwC I 2nd Global Crypto M&A and Fundraising Report Dear Clients and Friends, We are proud to launch the 2nd edition of our Global Crypto M&A and Fundraising Report. We hope that the market colour and insights from this report will be useful data points. We will continue to publish this report twice a year to enable you to monitor the ongoing trends in the crypto ecosystem. PwC has put together a “one stop shop” offering, focused on crypto services across our various lines of services in over 25 jurisdictions, including the most active crypto jurisdictions. Our goal is to service your needs in the best possible way leveraging the PwC network and allowing you to make your project a success. Our crypto clients include crypto exchanges, crypto investors, crypto asset managers, ICOs/IEOs/STOs/stable and asset backed tokens, traditional financial institutions entering the crypto space as well as governments, central banks, regulators and other policy makers looking at the crypto ecosystem. As part of our “one stop shop” offering, we provide an entire range of services to the crypto ecosystem including strategy, legal, regulatory, accounting, tax, governance, risk assurance, audit, cybersecurity, M&A advisory as well as capital raising. More details are available on our global crypto page as well as at the back of this report. 2nd Global Crypto M&A and Fundraising Report April 2020 PwC 2 3 PwC I 2nd Global Crypto M&A and Fundraising Report 5 Key takeaways when comparing 2018 vs 2019 There
    [Show full text]
  • Asymmetric Proof-Of-Work Based on the Generalized Birthday Problem
    Equihash: Asymmetric Proof-of-Work Based on the Generalized Birthday Problem Alex Biryukov Dmitry Khovratovich University of Luxembourg University of Luxembourg [email protected] [email protected] Abstract—The proof-of-work is a central concept in modern Long before the rise of Bitcoin it was realized [20] that cryptocurrencies and denial-of-service protection tools, but the the dedicated hardware can produce a proof-of-work much requirement for fast verification so far made it an easy prey for faster and cheaper than a regular desktop or laptop. Thus the GPU-, ASIC-, and botnet-equipped users. The attempts to rely on users equipped with such hardware have an advantage over memory-intensive computations in order to remedy the disparity others, which eventually led the Bitcoin mining to concentrate between architectures have resulted in slow or broken schemes. in a few hardware farms of enormous size and high electricity In this paper we solve this open problem and show how to consumption. An advantage of the same order of magnitude construct an asymmetric proof-of-work (PoW) based on a compu- is given to “owners” of large botnets, which nowadays often tationally hard problem, which requires a lot of memory to gen- accommodate hundreds of thousands of machines. For prac- erate a proof (called ”memory-hardness” feature) but is instant tical DoS protection, this means that the early TLS puzzle to verify. Our primary proposal Equihash is a PoW based on the schemes [8], [17] are no longer effective against the most generalized birthday problem and enhanced Wagner’s algorithm powerful adversaries.
    [Show full text]
  • Piecework: Generalized Outsourcing Control for Proofs of Work
    (Short Paper): PieceWork: Generalized Outsourcing Control for Proofs of Work Philip Daian1, Ittay Eyal1, Ari Juels2, and Emin G¨unSirer1 1 Department of Computer Science, Cornell University, [email protected],[email protected],[email protected] 2 Jacobs Technion-Cornell Institute, Cornell Tech [email protected] Abstract. Most prominent cryptocurrencies utilize proof of work (PoW) to secure their operation, yet PoW suffers from two key undesirable prop- erties. First, the work done is generally wasted, not useful for anything but the gleaned security of the cryptocurrency. Second, PoW is natu- rally outsourceable, leading to inegalitarian concentration of power in the hands of few so-called pools that command large portions of the system's computation power. We introduce a general approach to constructing PoW called PieceWork that tackles both issues. In essence, PieceWork allows for a configurable fraction of PoW computation to be outsourced to workers. Its controlled outsourcing allows for reusing the work towards additional goals such as spam prevention and DoS mitigation, thereby reducing PoW waste. Meanwhile, PieceWork can be tuned to prevent excessive outsourcing. Doing so causes pool operation to be significantly more costly than today. This disincentivizes aggregation of work in mining pools. 1 Introduction Distributed cryptocurrencies such as Bitcoin [18] rely on the equivalence \com- putation = money." To generate a batch of coins, clients in a distributed cryp- tocurrency system perform an operation called mining. Mining requires solving a computationally intensive problem involving repeated cryptographic hashing. Such problem and its solution is called a Proof of Work (PoW) [11]. As currently designed, nearly all PoWs suffer from one of two drawbacks (or both, as in Bitcoin).
    [Show full text]
  • Consent Order: HDR Global Trading Limited, Et Al
    Case 1:20-cv-08132-MKV Document 62 Filed 08/10/21 Page 1 of 22 UNITED STATES DISTRICT COURT SOUTHERN DISTRICT OF NEW YORK USDC SDNY DOCUMENT ELECTRONICALLY FILED COMMODITY FUTURES TRADING DOC #: COMMISSION, DATE FILED: 8/10/2021 Plaintiff v. Case No. 1:20-cv-08132 HDR GLOBAL TRADING LIMITED, 100x Hon. Mary Kay Vyskocil HOLDINGS LIMITED, ABS GLOBAL TRADING LIMITED, SHINE EFFORT INC LIMITED, HDR GLOBAL SERVICES (BERMUDA) LIMITED, ARTHUR HAYES, BENJAMIN DELO, and SAMUEL REED, Defendants CONSENT ORDER FOR PERMANENT INJUNCTION, CIVIL MONETARY PENALTY, AND OTHER EQUITABLE RELIEF AGAINST DEFENDANTS HDR GLOBAL TRADING LIMITED, 100x HOLDINGS LIMITED, SHINE EFFORT INC LIMITED, and HDR GLOBAL SERVICES (BERMUDA) LIMITED I. INTRODUCTION On October 1, 2020, Plaintiff Commodity Futures Trading Commission (“Commission” or “CFTC”) filed a Complaint against Defendants HDR Global Trading Limited (“HDR”), 100x Holdings Limited (100x”), ABS Global Trading Limited (“ABS”), Shine Effort Inc Limited (“Shine”), and HDR Global Services (Bermuda) Limited (“HDR Services”), all doing business as “BitMEX” (collectively “BitMEX”) as well as BitMEX’s co-founders Arthur Hayes (“Hayes”), Benjamin Delo (“Delo”), and Samuel Reed (“Reed”), (collectively “Defendants”), seeking injunctive and other equitable relief, as well as the imposition of civil penalties, for violations of the Commodity Exchange Act (“Act”), 7 U.S.C. §§ 1–26 (2018), and the Case 1:20-cv-08132-MKV Document 62 Filed 08/10/21 Page 2 of 22 Commission’s Regulations (“Regulations”) promulgated thereunder, 17 C.F.R. pts. 1–190 (2020). (“Complaint,” ECF No. 1.)1 II. CONSENTS AND AGREEMENTS To effect settlement of all charges alleged in the Complaint against Defendants HDR, 100x, ABS, Shine, and HDR Services (“Settling Defendants”) without a trial on the merits or any further judicial proceedings, Settling Defendants: 1.
    [Show full text]
  • Bypassing Non-Outsourceable Proof-Of-Work Schemes Using Collateralized Smart Contracts
    Bypassing Non-Outsourceable Proof-of-Work Schemes Using Collateralized Smart Contracts Alexander Chepurnoy1;2, Amitabh Saxena1 1 Ergo Platform [email protected], [email protected] 2 IOHK Research [email protected] Abstract. Centralized pools and renting of mining power are considered as sources of possible censorship threats and even 51% attacks for de- centralized cryptocurrencies. Non-outsourceable Proof-of-Work schemes have been proposed to tackle these issues. However, tenets in the folk- lore say that such schemes could potentially be bypassed by using es- crow mechanisms. In this work, we propose a concrete example of such a mechanism which is using collateralized smart contracts. Our approach allows miners to bypass non-outsourceable Proof-of-Work schemes if the underlying blockchain platform supports smart contracts in a sufficiently advanced language. In particular, the language should allow access to the PoW solution. At a high level, our approach requires the miner to lock collateral covering the reward amount and protected by a smart contract that acts as an escrow. The smart contract has logic that allows the pool to collect the collateral as soon as the miner collects any block reward. We propose two variants of the approach depending on when the collat- eral is bound to the block solution. Using this, we show how to bypass previously proposed non-outsourceable Proof-of-Work schemes (with the notable exception for strong non-outsourceable schemes) and show how to build mining pools for such schemes. 1 Introduction Security of Bitcoin and many other cryptocurrencies relies on so called Proof-of- Work (PoW) schemes (also known as scratch-off puzzles), which are mechanisms to reach fast consensus and guarantee immutability of the ledger.
    [Show full text]
  • Short Selling Attack: a Self-Destructive but Profitable 51% Attack on Pos Blockchains
    Short Selling Attack: A Self-Destructive But Profitable 51% Attack On PoS Blockchains Suhyeon Lee and Seungjoo Kim CIST (Center for Information Security Technologies), Korea University, Korea Abstract—There have been several 51% attacks on Proof-of- With a PoS, the attacker needs to obtain 51% of the Work (PoW) blockchains recently, including Verge and Game- cryptocurrency to carry out a 51% attack. But unlike PoW, Credits, but the most noteworthy has been the attack that saw attacker in a PoS system is highly discouraged from launching hackers make off with up to $18 million after a successful double spend was executed on the Bitcoin Gold network. For this reason, 51% attack because he would have to risk of depreciation the Proof-of-Stake (PoS) algorithm, which already has advantages of his entire stake amount to do so. In comparison, bad of energy efficiency and throughput, is attracting attention as an actor in a PoW system will not lose their expensive alternative to the PoW algorithm. With a PoS, the attacker needs mining equipment if he launch a 51% attack. Moreover, to obtain 51% of the cryptocurrency to carry out a 51% attack. even if a 51% attack succeeds, the value of PoS-based But unlike PoW, attacker in a PoS system is highly discouraged from launching 51% attack because he would have to risk losing cryptocurrency will fall, and the attacker with the most stake his entire stake amount to do so. Moreover, even if a 51% attack will eventually lose the most. For these reasons, those who succeeds, the value of PoS-based cryptocurrency will fall, and attempt to attack 51% of the PoS blockchain will not be the attacker with the most stake will eventually lose the most.
    [Show full text]
  • Does the Hashrate Affect the Bitcoin Price?
    Journal of Risk and Financial Management Article Does the Hashrate Affect the Bitcoin Price? Dean Fantazzini 1,* and Nikita Kolodin 2 1 Moscow School of Economics, Moscow State University, Leninskie Gory, 1, Building 61, Moscow 119992, Russia 2 Higher School of Economics, Moscow 109028, Russia; [email protected] * Correspondence: [email protected]; Tel.: +7-4955105267; Fax: +7-4955105256 Received: 30 September 2020; Accepted: 27 October 2020; Published: 30 October 2020 Abstract: This paper investigates the relationship between the bitcoin price and the hashrate by disentangling the effects of the energy efficiency of the bitcoin mining equipment, bitcoin halving, and of structural breaks on the price dynamics. For this purpose, we propose a methodology based on exponential smoothing to model the dynamics of the Bitcoin network energy efficiency. We consider either directly the hashrate or the bitcoin cost-of-production model (CPM) as a proxy for the hashrate, to take any nonlinearity into account. In the first examined subsample (01/08/2016–04/12/2017), the hashrate and the CPMs were never significant, while a significant cointegration relationship was found in the second subsample (11/12/2017–24/02/2020). The empirical evidence shows that it is better to consider the hashrate directly rather than its proxy represented by the CPM when modeling its relationship with the bitcoin price. Moreover, the causality is always unidirectional going from the bitcoin price to the hashrate (or its proxies), with lags ranging from one week up to six weeks later. These findings are consistent with a large literature in energy economics, which showed that oil and gas returns affect the purchase of the drilling rigs with a delay of up to three months, whereas the impact of changes in the rig count on oil and gas returns is limited or not significant.
    [Show full text]
  • Bitmex Xbt Price on Spreadsheet
    Bitmex Xbt Price On Spreadsheet Follow-up Barty sometimes enounces his Beaulieu stalwartly and configure so apologetically! If unteachable or goadSolutrean her Stafford Troy usually insufferably, risks his Salopian roneos prickle and uniplanar. amok or solemnized proximo and farther, how piniest is Zeb? Uli BitMEX Topics covered in Lesson 2 Cash an Carry. Bitmex Bans Its sister Country Trustnodes. Bitmex XBTUSD historical price data order books and OHLCV candlesticks. American authorities police criminal charges on Thursday against the owners of kiss of surgery world's biggest cryptocurrency trading exchanges BitMEX accusing them of allowing the Hong Kong-based company to launder money and engage in other illegal transactions. This call does return Bitcoin traded volume in XBT over since last 24h on Kraken. The Calculator can show his current ProfitLoss PnL Target prices at set. 6 July 2019 AntiLiquidation is a BitMEX Anti-Liquidation Tool Position Calculator. 24 Hours BitMex Liquidation Data of XBTUSD ETHUSD and All Supported Asset. BTC USD Bitfinex Historical Data Investingcom. It is Buyer's move bitcoin analysis price bitmex inverse contract process are playing. For market trades fees are 0075 of your stop for both entry exit So total fees on a 1000 trade with 100x leverage are 150 100 x 1000 x 000075 x 2 Fees are 15 in industry case. Bitcoin Price Bitmex and Coinbase Trading News Value of Wallet Bitcoin. In a dramatic day for Bitcoin BTC bulls pushed the price of BitMEX's XBT. Demo Binance Huobi Bitmex And Others In Spreadsheet Using Api Excel. The price on an ma in any such levels indicator would come under cftc.
    [Show full text]