CRYPTOCURRENCY PROBLEMS, LIMITATIONS, RISKS & SOLUTIONS PRESENT BY: ZACHARY MUTTER BARI HERSCKOWITZ KryptoShare® SEND • SHARE • STORE The Future of Crypto *Patent Pending What is Cryptocurrency? u Form of either decentralized or centralized electronic cash u Incorporates digital signatures that create one way irreversible transactions u Reliant on timestamp network creating hash-based proof of work; creating blockchain u Longer the blockchain; harder to manipulate and steal (double-spend) cryptocurrency u More computing power proofing blockchain the better u 1st successful cryptocurrency Bitcoin. Others tried like Ecash in the 90s but failed due to centralization problems. Current Problems with Crypto ▶ Senders/receivers of crypto currencies are restricted to being forced to know or have: ▶ QR code ▶ 32+ Public Key (aka address) ▶ Without this info NO transactions can transpire ▶ Personal details are absent from senders/receivers of cryptocurrency ▶ Around 7 bitcoin transactions are able to be processed every second vs visa with about 1,700 per second. *Patent Pending Current Limits of Crypto Currency & Services u Limitations are only one address per type of crypto-currency. u Users can only send Bitcoin to a “Bitcoin only” address u Currently you can only send to people or businesses’ addresses you know, which are subject to change u Transactions are very data poor u Transactions can take minutes to days depending on the respective network load u Minimal connectivity on social media for crypto-currency users *Patent Pending Example of Limitations ▶ This transaction shows little useful data ▶ The receiver doesn’t know who/what sent them cryptocurrency Current Status: “confirming/pending” this could last minutes or days *Patent Pending Bitcoin u Idea was developed by Satoshi Nakamoto u Users of Bitcoin never really own Bitcoin, they own a piece of the cryptocurrency in the network u To receive Bitcoin users must send their Public Key or QR code, which is subject to change, to sender u Sender transmits Bitcoin, sender’s private key signs transaction which is verified by the network of miners and a new block of data is added to the chain proving the transaction was authentic u Incentive for miners to maintain bitcoin blockchain is the payment of said cryptocurrency u Around the year 2140, the currency will reach it’s the max limit of 21 million bitcoins total The Value of FIAT Money u US dollar was tied to price of gold. u Bretton Woods Agreement setup rules relating the value of foreign goods and assets to the U.S dollar which was weighted against the assigned value of gold, $35/ounce u President Nixon ended the agreement as there was not enough gold to keep up with the supply of needed dollar u FIAT has zero value https://www.thebalance.com/what-is-the-history-of-the-gold-standard-3306136 The Value of Cryptocurrency u First value created with cryptocurrency was done so with Bitcoin in 2010 u Florida programmer paid 10,000 bitcoins to get two pizzas delivered from Papa John's. He paid a user in in England, who then called in the pizza order u Shortly thereafter a farmer in Massachusetts named David Forster began accepting bitcoins as payment for alpaca socks https://www.investopedia.com/news/bitcoin-pizza-day-celebrating-20-million-pizza-order/ Value Creation in Crypto Crypto vs Traditional Banking u According to the 2017 FDIC National Survey of Unbanked and Underbanked Households in the U.S approximately 20% of American households are underbanked u Growing number of both private banks and online fiduciary entities are closing customers accounts. u Chase bank and PayPal has closed numerous customers’ accounts due to what they claim are political bias Moving to Crypto u Unlike traditional banking, customers of cryptocurrency are required to provide much less personal information, depending on the cryptocurrency wallet’s conditions u Able to access cryptocurrency 24/7 u Transactions are irreversible u Many social media figures have attracted their followers to donate to them via cryptocurrency U.S. Banks & Bitcoin u US Bank, Bank of America, Chase and Citi Group have banned customers from buying Bitcoin u Visa and Mastercard re-classified buying Bitcoin as ‘cash advances’ instead of purchases and charge an extra 5% fee u Just saying Bitcoin in local bank will raise alarms with staff https://news.bitcoin.com/bank-america-becomes-latest-credit-card-issuer-ban-bitcoin/ Smart Contracts u ERC 720/721 (Ethereum Request for comment) u They contain unique pieces of data within the cryptocurrency; often a HTTP(S) link. Code Example: contract MyNFT { mapping(uint256 => string) tokenLinks; function tokenMetadata(uint256 _tokenId) constant returns (string infoUrl) { return tokenLinks[_tokenId]; } WHAT DO I NEED? The Bubble u Much like the dotcom bubble there are many interesting new cryptocoins whose value comes almost entirely from speculation and fueled by the hopes that these individual coins would be profitable one day u Many coins are tied to speculation only or pho-value for new businesses Crypto Fundraising Regulations Regarding ICO u The S.E.C deemed in 2018 that these coins could be regulated as securities. Up until this point companies treated the ‘coins’ as digital assets only meet to be redeemed at their business u Brian Quintenz one of the top U.S. Commodity Futures Trading Commission stated in a hearing March 2016 “As the markets for virtual currencies mature, the Commission, along with its fellow state, federal, and international regulators, should ensure a rational approach to regulatory oversight, not one based on fear or inexperience” (Aitken 2018). u CFTC Chairman Giancarlo stated, “the CFTC should not attempt to make value judgments about which new products are worthwhile and which are not - the markets, investors, and consumers need to decide that for themselves” (Aitken 2018). Regulations continued u The CFTC has designated bitcoin as a commodity u IRS says bitcoin must be treated as property for tax purposes. That means a capital gain or loss should be recorded as if it were an exchange involving property. If it is used as payment, it should be treated like currency, but must be converted, and its fair market value checked on an exchange. u FinCEN’s Guidance FIN-2013-G001 declared that “virtual currency does not have legal tender status in any jurisdiction.” https://www.marketwatch.com/story/heres-how-the-us-and-the-world-are-regulating-bitcoin-and-cryptocurrency-2017-12-18 Have You Seen These Coins? Limits and Pitfalls of Cryptocurrency u The ability to track cryptocurrency has lead to sellers of BTC being arrested for what buyers of crypto do with it once they buy it. u Ex: BitInstant was legitimate company that sold BTC. A few customers used their purchases on SilkRoad. Charlie Shrem was sent to jail. u A user sent and obtained BTC for ISIS u High-jacking payments received in BTC only u Sellers are often charged with not being licensed as money transmitters with the Financial Crimes Enforcement Network https://www.ccn.com/charlie-shrem-bitinstant-ceo-bitcoin-foundation- vice-chairman-arrested-new-york https://www.cnbc.com/2018/11/26/new-york-woman-pleads-guilty- to-using-bitcoin-to-launder-money-for-isis.html Crypto vs Regulators u Coinbase had a lengthy and expensive battle between regulators. u Coinbase finally agreed to reveal the data of 13,000 customers , out of 21 million, as a plea to end the fight. u Coinbase is #1 most downloaded finance app of all time and in the past was the most downloaded app. u Coinbase also faced fraud lawsuit with Bitcoin cash, launched on their platform Dec 2017, trading at $3,160 today is $400.00 https://www.newsbtc.com/2018/07/10/coinbase-app-downloads-have-dropped-but-interest-in-cryptos-isnt-waning/ Insurance Limitations u There is NO third-party insurance to cover any loss that may be suffered with respect to the Trust’s bitcoins u There is currently no clearing house for bitcoin, nor is there a central or major depository for the custody of bitcoin. u Bitcoin transactions are irreversible. Stolen or incorrectly transferred bitcoin may be irretrievable. https://www.sec.gov/Archives/edgar/data/1588489/000119312517013693/d157414ds1.htm Safely Storing Cryptocurrency Ø High quality safe storage Ø Cold storage refers to holding digital assets on a secure device offline. For a transaction to be complete the private key has to confirm the transfer. This is often a necessary security precaution, especially dealing with large amounts of crypto. Ø MtGox collapse is still being felt today as large amounts of crypto are liquidated Ø NiceHash hack stole millions of dollars worth of cryptocurrency *Patent Pending *Patent Pending Requests Statement Page *Patent Pending KryptoShare’s Data Rich Statements After successfully creating a transaction the user can INSTANTLY: Ø See the wallet the crypto currency came from (sender) and went to (receiver) Ø Know when the transaction was created, time stamped Ø Know type of crypto-currency being sent/received & amount Ø Sender will have ability for the sender to make this transaction public/private Ø Transaction Details—See example below taken from KryptoShare’s Statement Page *Patent Pending KryptoShare Platform Solutions for the Crypto Industry u No need to memorize/copy/paste 32+address or have QR codes! u KryptoShare users can send/receive crypto currency with a unique user-name. Multiple crypto currency can go to that ONE KryptoShare username. u A data rich transaction is instantly created for both senders and receivers of any integrated crypto-currency. Before the network confirms in the respective blockchain, KryptoShare already creates the transaction. Send Ethereum, Litecoin and Bitcoin all to one simple user name and easily keep track of every transaction.