Privacy Coins – Protecting Your Right To How You Spend Your Money

If you were given a bag of cryptocurrency assets, what would it include?

Many would probably say coins that have the ability to cut the middle man out and use direct peer-to-peer (P2P) payments. That is the main point, but there is another one that is just as important … PRIVACY.

The right to spend your money the way you choose without being asked questions. How you spend your money is your right, and no one can decide what you can and cannot use it for. This is not to encourage illicit activity, which is usually the message regulators get. Instead it is about protecting a citizen’s right to privacy. Why should anyone track what a person buys? Should the government know who you donate your money to? If for example the current administration in your country is against the political ideology of the person you donate money to, they could use that information to cut you off. Another example which many would want to consider private is the purchase of adult content. Now there is a legitimate reason to go after criminal activities, but for non-illegal transactions that deserve the right to be anonymous should be allowed.

The type of cryptocurrency that should be in that bag of assets should include Privacy Coins. These provide a layer of protection for users to confidentiality and anonymity in their transactions. Someone can use these tokens to spend their money on things that they would otherwise be embarrassed to disclose. I won’t get into details, but people should be able to use digital payment systems that are like cash in the real world. It is what financial freedom should be all about.

When you use cash, it is a final transaction. There is no ledger that tracks what you spent your money on. It is the most anonymous and private way to transact. This is not how it is like with digital electronic payments today, even with most cryptocurrency like Bitcoin. Visa and Mastercard, both debit and credit, keep records of your transactions in a database. This is necessary for accounting, but it also reveals what you spent your money on. Bitcoin is not fully anonymous, it is pseudonymous. It is still possible to track a person down to the digital exchange where they convert BTC for fiat currency. Bitcoin provides plenty of transparency, and that is important for certain transactions.

Privacy Coins can provide anonymity using techniques that obfuscate transactions. They can also hide the user’s identity in a transaction. This is referred to as a double blind, in which the system does not know what you spent your money on and anyone outside the system as well. Only you and the other party you dealt with will have knowledge of the transaction. It can also be triple blind, in which case no one will know your identity, even the person you transacted with. Only you know about the transaction. This does pose a problem to regulators who want to be able to track down transactions or the movement of money. This is to check for AML (Anti-Money Laundering) purposes for financial rules and regulations in the banking and finance industry.

This is not to say that everyone will use Privacy Coins for purposes of laundering money, but the question is why do those laws exist in the first place? They are jurisdiction mandated to control the flow of money outside of the country. It is in fact necessary to keep track of the flow of money to prevent funding of terrorism and illegal financing. Privacy Coins can circumvent these laws, so it is not popular with regulators.

Monero (XMR), Dash (DASH) and ZCash (ZeC) are three of the top Privacy Coins. Each one has its main feature that provides privacy for its users. Monero provides untraceable source and destination of transactions using the CryptoNight PoW protocol. Dash uses PrivateSend, which mixes up data in a transaction to hide it from prying eyes. ZCash uses its Zero Knowledge Proof technique called Zk-SNARKS (Zero-Knowledge Succinct Non-Interactive Argument of Knowledge) which does not reveal the information in a transaction.

Privacy features are also being incorporated into other blockchain projects using cryptocurrency. It is becoming an important consideration despite the legal hurdles they could face. Privacy focused projects have significance when it comes to protecting identity and anonymity in transactions. Whether or not that is allowed is a subjective question depending on which perspective you are looking at it from. For the individual citizen it is a right to be able to choose how you spend your money, and Privacy Coins offer a way to do so without being tracked.

For regulators, it is not a good look because of the potential to provide criminals with a way to hide their illicit activities. This will certainly not be allowed in restrictive governments that are highly centralized, but it could find some leeway in less restrictive governments. In the US constitution there is an amendment that guarantees privacy, but under the rule of law:

“No State shall… deprive any person of life, liberty, or property,
without due process of law.” – Liberty Clause of the 14th Amendment

As technology evolves, so to will the interpretation of due process since there is no specific law that guarantees the right to an individual’s privacy with their money. The best way to do this is for regulators to come up with a list of what are transactions that can be permitted for privacy (e.g. novelty items, direct P2P sales, etc.) and which ones certainly need to be regulated (e.g. cross border money transfers). Ultimately it will be decided by the courts. Banning them however will not be easy due to their decentralized nature, and that could be what keep Privacy Coins alive.

Electronic Payments Are Safer In Times Of Pandemics, But Does That Lead To More Value For Cryptocurrency?

The spread of the novel coronavirus (COVID-19) has ravaged the global economy significantly. Lockdowns and restrictions on air travel will affect many industries, and that has led to a tanking economy. The virus has now been declared a pandemic by the WHO, so it has had some serious effects on the policies of the world’s major nations to take drastic measures to curb the increase in cases. The hashtag #StayHome has been trending on both mainstream and social media, to encourage people to social distancing in order to prevent the further spread of the virus via community transfer.

The issue of containing the virus seems no longer possible, especially in countries like Italy, Iran and Spain were the virus quickly spread. It is overwhelming their healthcare systems and led to declarations of national emergency. Experts agree that the main way the virus is spread is through social contact. An infected person can potentially spread the virus to three other persons they come in contact with. The virus is not the same as the flu, it is a different strain of the coronavirus that is related to SARS. It can spread like the common cold and the flu, but the symptoms can turn from mild to severe. The most severe cases require ventilators to help patients breathe. Scientists are discovering more about the virus, and this can help researchers find a solution or way to mitigate the problem.

One way the virus can be spread is through cash i.e. paper currency. This has been the case in China, where authorities there have been either disinfecting or destroying paper currency. The amount of time the virus can survive on surfaces also depends, but if it can last more than a day (24 hours) on the surface of paper currency, that it is a cause for concern. It can happen quickly enough that there won’t be time to disinfect it. It is not like every store that accepts cash will suddenly take the time to disinfect the money they accept or give back as change.

In a typical scenario of virus transmittal by paper currency, an infected person who handles the money makes a payment at the store. The clerk at the register takes the money and the virus transfers to the clerks hand. Now the transmission to the clerk can be the moment the clerk touches their face and the virus finds a way in through the eyes or nose. Once the virus gets into the clerk’s body they may not immediately show symptoms. In fact, some infected persons appear asymptomatic or show no signs of the virus until much later (14 days according to most medical experts). The virus is further spread by the clerk when handing back change to the store’s customers. It then begins to spread through the rest of the community as someone comes home from the store. You can catch it from shaking hands too, the reason for elbow bumps.

The WHO is now advising us to use forms of electronic digital payments as a precautionary measure. It is contactless, meaning there is no physical contact involved that could lead to virus infection. Paying with a credit or debit card at the store is an example. Other ways to pay are online, via an app. Some stores and restaurants will accept electronic payments and then allow customers to pick up their order. It is still risky to even go out and have items handled at the stores, but electronic payments can help as another way to avoid contact with the virus. Self checkout of items at a supermarket using a card payment method appears to be the most ideal way. The important thing to remember though is for everyone to wash or sanitize their hands after any transaction. Once the virus gets on your hands it can easily spread. It is also important to not touch the face, rub eyes and avoid habits like biting finger nails.

It is still wise to be careful though. This is because you still have to be alert since this gives hackers an opportunity to victimize more people. Make sure that you connect to a secure link that always uses HTTPS. Sites like Amazon provide this by default, but make sure that you are connected to the correct site. You can check to see if there is a padlock icon next to the website name. It should show HTTPS in the web address as well. If your browser does not support this protocol, your connection is vulnerable because it leaves your data exposed (e.g. credit card number, etc.). Check that the app you installed from your merchant is also legit. This can be verified by the vendor’s website. If you are already using Apple or Samsung Pay, you have biometric authentication for more security.

Now it leads to the question, will cryptocurrency become more valuable during times like pandemics?

As we have seen in the news, once the virus was declared a pandemic and seems beyond containment, the market crashed on Wall Street and other financial markets around the world. This led to dumping of stocks for money. The lockdowns have also had a major impact on the economy, leading to loss of livelihood for many workers in the entertainment, restaurant, service and retail industry. Generally any job that requires social interaction, as social distancing has been encouraged by authorities to stem the possible worst case scenario projections. Panic from the mainstream media reports have led to more fear, uncertainty and doubt i.e. FUD.

The cryptocurrency market did not do any better, but even worse. Bitcoin (BTC) and the altcoins crashed as well, with the value of Bitcoin dipping to a low of $4,106.98 on March 13, 2020 with previous highs from $9,937.40 back on February 23, 2020. It is not just about the weak hands pulling back or whales dumping, the sentiment was due more to the bleak outlook on the economy. People dumped their cryptocurrency back to fiat currency. In times of crisis, people don’t buy cryptocurrency. Instead it is the opposite. It followed the Dow Jones fall and stock market crash in this case. If you have ever heard any cryptocurrency trader or influencer say that things are going to get worse before they get better, that is a fair assumption.

There is another viewpoint though that with crisis comes opportunity. While everyone else you know maybe dumping their stocks or cryptocurrency, there are others who are buying at the dip (as traders call it). It becomes a buying opportunity, like a sale on something that was once expensive to buy. When Bitcoin fell from $9,000+ to < $5,000, some traders viewed this as the time to buy and accumulate more coins. This gives some traders a chance to finally have 1 BTC in anticipation of greater value in the future (much like investing in a stock but without dividends).

It seems apparent though that cryptocurrency is not valued as a medium of exchange. In times of crisis more people were selling their cryptocurrency and not using it for electronic payments. The use of cryptocurrency in making payments is still not mainstream. In fact, cryptocurrency is more important as a store of value than for making payments. Imagine if the banks suddenly suspend your funds during a pandemic and there was no way for you to take it out. In this case having cryptocurrency would be ideal by exchanging it for fiat currency or making transactions. You also have some of your assets in digital form and thus you have value that can be exchanged later.

At this moment it is more a question of what is practical. If you had to buy toilet paper right now, would you be willing to spend it in BTC or ETH? Another question is, will the store accept your payment in cryptocurrency? The answer to both questions is usually no. Electronic payments using fiat currency stored in a bank account is still the preferred method, not from a digital wallet that holds the value of cryptocurrency. What seems obvious thus far is that in crisis mode, people will stick to what is familiar in order to get by.

The Different Types Of Cryptocurrency Assets

Not all cryptocurrency are the same. They have different purposes, from utility tokens that provide a service to tokens that transfer value. Tokenizing a certain industry (e.g. cannabis, music, entertainment) is also possible using digital transformations with the use of a cryptocurrency with a blockchain or distributed ledger. Although they were based on the foundations of decentralization, some are more decentralized than others. It is because of the problems of scalability. In order to become more scalable, many assets have become more centralized in order to handle more transaction volumes.

Platform Cryptographic Assets

Ethereum, NEO and EOS are examples of application development platforms. Developers can use these platforms like an operating system to build applications called DApps (Distributed Applications). They are based on the concept of gas as unit of cost for computation. The logic is encapsulated in smart contracts, which contain conditions for executing code that can perform transactions. Gas costs, measured in units called gwei, are smaller denominations of the main token like ether that are spent on processing the transaction (much like a transaction fee). Many proponents do not classify these assets as securities, but a platform token needed for operations on the network.

Payment Cryptographic Assets

Bitcoin is the classic example of a P2P digital currency or payment cryptographic asset. This asset class is used as a medium of exchange for payments on goods and services. The use of these asset tokens provide a fast and efficient way to transfer value for cross-border payments and direct payment transfers without requiring a third party like banks. This circumvents jurisdiction regulations, so there are plenty of legal implications regarding these assets. There are many of them based on the original Bitcoin architecture. Although Bitcoin’s token BTC was meant for payments, it is fast becoming a store of value.

Side Chains

These complement the main network of a blockchain. This enables BTC and other payment assets and other ledger assets to be transferred between multiple blockchains. These implement an off-chain solution and are primarily used for the purpose of scaling the network. It removes the burdens of transaction processing from the main network. However, settlements are still made on the main network to record the state of the transaction. Side chains merely facilitate the transfer of value while the main network records it. The Lightning Network is an example of this.

Application Token

There are many ways cryptocurrency can be applied to real world business and financial solutions. It has also found its way to certain industries with interesting applications. Stablecoins are an example with the Tether project. This allows pegging fiat to a cryptocurrency asset for the purpose of trading in a volatile market. These allows traders to store the value of their fiat currency without losing from the speculative cryptocurrency market. Golem and Veritaseum are other examples of how tokens can be used for computing distribution and capital market connections. It is related to protocols, because applications run mostly on top of a protocol built for a platform.

Protocol Token

Protocols refers to rules of a particular ecosystem. It can be in the finance or energy market. These tokens were designed with incentivization as a purpose. This allows more value to enter blockchain based cryptocurrency. Protocols provide a supporting layer for applications built to run on platforms. They are mutually beneficial to each other. For example the Ethereum protocol can be used to support smart contract development running DApps. In order to run the DApp it will use a protocol token like ether. The DApp itself can generate its own value using an application token as an incentive.

Facebook Libra Is Realizing The Difficulty Of Regulatory Compliance

Facebook’s Libra is not looking good. Paypal, Mastercard, Visa and even E-Bay have pulled out of the Libra Association. This comes after the hurdles Facebook needs to overcome in order to meet regulatory compliance. This tells us just how difficult it is to build blockchain-based solutions that offer cryptocurrency as payments. It seems easy on paper to draft a proposal to gather some of the world’s leading companies to form a system for digital and cryptographically secure payments.

The following have been some of the criticisms thrown at Facebook from members of the US Senate (Senators Sherrod Schatz and Brian Brown) in a letter sent to CEOs of Visa, Mastercard and Stripe.

“We are concerned because key questions remain unanswered about the risks the project poses to consumers, regulated financial institutions, and the global financial system. We urge you to carefully consider how your companies will manage these risks before proceeding.”

The senators continue with this warning:

“Facebook is currently struggling to tackle massive issues, such as privacy violations, disinformation, election interference, discrimination, and fraud, and it has not demonstrated an ability to bring those failures under control. You should be concerned that any weaknesses in Facebook’s risk management systems will become weaknesses in your systems that you may not be able to effectively mitigate.

All this seems to have influenced the decisions of Libra Association members from dropping out of the project. Facebook is not exactly trustworthy when it comes to data privacy and security after revelations of their involvement with Cambridge Analytica and selling user data to third party without full consent. This makes the situation even more difficult with so much opposition from within the US government.

Libra aims to serve the unbanked and provide a fast and reliable way to make electronic payments using Facebook’s ecosystem. This is actually a major undertaking because of its potential to open up the cryptocurrency market to mass adoption. What is at stake here are Facebook’s 2+ billion users along with its social media platform Instagram and messaging application WhatsApp. Those who joined the Libra Association were viewing this as a major business opportunity to tap the market which this creates with Facebook’s users. Users would use the Libra token which they can access from the Calibra digital wallet to make payments, using WhatsApp.

The opposition seems to stem from the impact this would have not just on the US economic and financial system, but the world as well. This is because other countries also do not have a favorable look on Libra. In essence, Facebook would become a bank that would not be regulated by jurisdiction like the US SEC if it were allowed to operate. That can also threaten major banks around the world who could lose their customers to Facebook. With the ease of payments and money transfers, Facebook could definitely facilitate the unbanked all over the world. All they will need is their smartphone or computer to open Facebook and they have access to their digital money.

That would be unfair to other financial institutions, who are regulated and follow jurisdiction compliance. Why should Libra have no regulation when it is doing the same type of business as banks and financial service companies. What Facebook probably didn’t realize is the reason cryptocurrency are better off decentralized without any central authority. Bitcoin has been around for more than 10 years now because it has no owner or actual structural organization. It is truly decentralized in its governance. Despite being associated with Satoshi Nakamoto, no one can come after him because he remains anonymous. Perhaps Facebook is too late in realizing this is how you build a cryptocurrency.

The cryptocurrency community is also not that favorable of Libra, though some are open minded to the idea. Those who look in favor like the idea because it could open up the cryptosphere to more people. Libra would be the on-ramp to other cryptocurrency so it is a gateway so to speak. The more die hard cryptocurrency supporters don’t even consider Libra as a true cryptocurrency running on a real blockchain. It is basically just another form of electronic cash pegged to fiat that uses a digital ledger technology (DLT) that is highly centralized. The purpose of a true blockchain with a cryptocurrency is to be a trustless and permissionless decentralized system.

The odds seem stacked up against Facebook and their Libra Association. The good thing about this is that Facebook is realizing the potential of cryptocurrency and blockchain technology. They must meet regulatory compliance in order to proceed. The Libra Association is still intact, but they will need Facebook to meet compliance in order to get approval. The stakes are high, and there is big money to be made behind this. What is clear here is that the US SEC is making it clear that in order to play you have to follow the rules. It is now up to Facebook if they can meet those requirements.

Stablecoins – Stability In A Sea Of Volatility

The cryptocurrency market is highly volatile. That is the main risk involved due to the speculative nature for cryptocurrency. Price changes can suddenly shift in a matter of seconds. A typical phenomenon observed in the market is called “pump and dump”, and involves a large injection of capital followed by a large outflow of it as well. This is an example of market manipulation, often carried out by investors called “whales”, who have large funds that can influence the market.

Since there is little regulation and lack of clarity in this space, it is really hard to control how money moves in and out of the market. Price valuation depends on the market cap that is the total capital of the cryptocurrency asset. The idea here for most investors is a future return of value, which is typical of a security. However, cryptocurrency are meant to be a form of payment or medium of exchange which has utility. It is supposed to be a currency like the US Dollar or the Euro, but speculators are treating it as a valuable asset. In other words, most cryptocurrency especially Bitcoin, are being treated as a store of value. Investors are “HODling” or holding on to them with the expectation of higher values in the future.

The problem with holding is the price volatility of cryptocurrency assets. The market shifts and swings, with 100% gains getting wiped out in seconds. Those who continue to hold are using a long term strategy but traders who go short will often lose more money than they expect. There is actually a solution to avoid the price volatility in the market for traders. Enter stablecoins, a cryptocurrency that is pegged to the value of fiat currency.

The best and oldest example of a stablecoin is Tether. The token is named USDT and is pegged to fiat currency like the US Dollar, Euro and Japanese Yen. This provides price stability for traders who want to keep their funds in the cryptocurrency market without the volatility of price swings. It makes sense to keep USDT as a trading pair with the top cryptocurrency in the market. Traders who hold USDT, don’t have to undergo any conversion at exchanges from fiat to cryptocurrency any longer. This will cost traders more money because of the associated fees with exchanging between fiat and cryptocurrency. With USDT, traders can conveniently hold their cryptocurrency assets without being affected by price swings since the USDT token is always pegged one to one to the US Dollar, etc. Since USDT has existing trading pairs with many cryptocurrency it is much simpler to trade on digital exchanges.

The complexity of moving large amounts of money from a bank to a digital exchange and vice versa, is in itself a hassle. Not to mention the scrutiny and the fees involved. Traders who have to convert fiat from their bank back to cryptocurrency to trade on exchanges are also incurring a loss because they could miss the moment to trade because of the process involved. A trader will be able to trade faster by just holding a stablecoin like USDT which they can convert and pump back into the market with an order book on digital exchanges.

According to Wikipedia, a stablecoin is:

“… designed to minimize the volatility of the price of the stablecoin, relative to some “stable” asset or basket of assets.”

The basket of assets can include precious metals or even other types of cryptocurrency. In the case of Tether, 1 US Dollar is supposed to back each USDT token issued. Maintaining that price point requires auditable proofs, which stablecoins must be able to provide to regulators.

Stablecoins even have a practical business application not just for traders, but for businessmen and financiers. Moving money across borders with cryptocurrency is actually faster and much simpler than using a bank of money transfer service. It does however, circumvent jurisdiction laws and that is the issue with transactions like this. There have also been criticisms that stablecoins may not actually have the fiat reserves to back their cryptocurrency. This has been the controversy with Tether. It is more a lack of transparency in their financial information that has regulators investigating.

Another issue that seems to beg scrutiny are how centralized stablecoins are under their respective companies. Most all stablecoins – Tether, Paxos, Gemini, TrueUSD – were developed by a company. Though they use a blockchain-based digital ledger technology, their governance and business process is not truly decentralized. They still make money from fees, but what if the government or a certain jurisdiction shuts down the company for non-compliance to regulations? What happens to the stablecoin holders? Digital exchanges can choose to blacklist the stablecoin token, and this would be disastrous for holders who have plenty of them to exchange. Stablecoins may also lead to an increase in the supply of money leading to inflation that is pegged to a national currency. That is another possible problem that stablecoins could introduce or exacerbate.

There are hurdles and many regulatory clarity questions regarding stablecoins. They can eventually lead to greater adoption with further cooperation with jurisdictions and regulators. Even Facebook and Walmart are planning to release their own cryptocurrency that uses a stablecoin. This can impact the mainstream since those are two of the world’s biggest companies. The potential is there, so it is just a matter of how they will be regulated and how companies who issue them will be able to comply. Stablecoins are beneficial to the cryptocurrency market as a whole. Whenever USDT trading volumes are high, it usually correlates to more trading activity of cryptocurrency assets like Bitcoin. Digital exchanges like Huobi and Binance reported 40-80% of transactions use USDT. It is also originating from China, where traders are using stablecoins like USDT to avoid banking restrictions (From article “Why Tether Volume Is At All-Time High” on Coindesk).

A Cointelegraph article “Stablecoins to Play Key Role in Crypto Adoption, Says New Report” states that stablecoins will have a key role in cryptocurrency adoption. This is optimistic news for stablecoins as they aim to address market volatility in cryptocurrency and hyperinflation with fiat currency. Countries with a high inflation rate can adopt stablecoins to stabilize their funds as a sort of safe haven, though this has not yet been seen on a proven scale. There are plenty of new projects being mentioned now that have the use for stablecoins. It could possibly draw the attention of institutional investors. The stability it can bring to a volatile market is what makes it an attractive solution for trading and perhaps even investing.

Facebook, Ready To Become A Global Bank?

What advantage do social media giants have to offering financial services?

A large user base. Facebook is set to provide electronic payment services using their own digital currency called the Libra coin. This story was huge when it first came out because of the hype around it as a cryptocurrency that would compete against Bitcoin and Ethereum. Perhaps that is not quite correct. The Libra coin is being offered as a token that provides ways for users on Facebook’s platform to make payments to each other. The tokens are provided with the Calibra wallet and a network validates transactions via a group known as the Libra Association.

Facebook’s cryptocurrency is not using an actual blockchain, but more a digital ledger. While it also uses cryptography to secure transactions and make them immutable and provide transparency, the set number of validators on the network make it more permissioned and centralized than a public blockchain. That is counter to the ideology behind cryptocurrency which are supposed to be permissionless and decentralized. Facebook will not be the sole validator on the network though, that is because it will be the duty of the Libra Association.

The Libra token is also not exactly going to be a competitor against Bitcoin. Libra’s value will not be based on market speculation or demand, but will be pegged to fiat currency. It is not exactly the type of digital asset to acquire as a store of value, unless the purpose of the token changes. Otherwise it is just like another version of an electronic payment system that is already quite common. Pegging it into fiat removes the volatility that is typical of cryptocurrency. No matter how many Libra coins you have, its value will remain the same as the amount of fiat you exchanged it for. The use of the Libra token for payments is to provide easier ways to pay with less friction and for accountability purposes.

The list of Libra alliance members is what is impressive. The idea that Facebook was able to unite companies like PayPal, Uber, Lyft, Visa and Mastercard gives the notion that this must really be on to something. That is because it has such huge potential, it has already attracted scrutiny from mainstream finance and regulators. However, it is not exactly a good thing because rather than approve it, critics want to either stop the whole thing from happening or regulate it with the full extent of the law.

What we have to realize is that Facebook has over 2+ billion users. The impact such undertaking has can influence people’s lives. That means that billions of users will be able to use Facebook to not only make payments, but as an on ramp to trading cryptocurrency as well. That can be good news for Bitcoin and Ethereum holders. Rather than compete, it can foster cryptocurrency growth. Facebook wants to reach out to the greater part of the population that is unbanked. Now that is a significantly large proportion of the world’s population. With more people having access to the Internet through their smartphones (4G technology), the impact this can have is really huge.

For regulators, the concern is Facebook’s reputation. Since the data privacy issues and Facebook’s appearance before the Senate, why would anyone trust Facebook? Other concerns include whether Facebook will censor those on their platform from using Libra. The overall power that Facebook will have in this field makes it hard for anyone else to compete against because of how large the user base is. Facebook is an ecosystem that includes Instagram, WhatsApp and Messenger. It will become so easy and convenient to use these apps to make payments, it is a great business plan.

For banks the biggest concern here is Facebook as a competitor. Libra coins can be bought using the Libra Association’s payment processors. It does not require banks, and this raises more scrutiny. Does this mean “Facebook will become their own bank?”, because they can very well do that. If people and businesses can start taking out loans from the Facebook, that will disrupt the banking industry. The amount of fiat reserves that Facebook and their Libra Association will hold from selling the coins will be held as not for profit. However, they can use the funds to continue to develop the Libra ecosystem and it will still benefit the members of the alliance and Facebook. Despite being not for profit, they still make money from accrued interest and the amount of money is huge. This is actually from a second token called the Libra Investment Token, and this is the financial reward for members of the Libra Association. Just like any cryptocurrency, there is an incentivized reward system for those who participate in its consensus.

Without further regulatory clarity and the amount of requirements, Facebook will have a mountain to climb until they get Libra to the public. Since the Libra Association has registered in Switzerland, they will also need to meet compliance with the authorities there. In the US, it will have to meet both federal and then state regulation before it can be approved. Other countries like China, may have a conflict of interest with Libra and may not ever see its use there.

What Libra coin can also provide is an on-ramp to on-board more people to an electronic payment system. Depending on how you look at it, the system can also be a gateway to cryptocurrency. Thus it will not directly compete with cryptocurrency like Bitcoin, but can actually make it easier for people to buy them. This is because Libra can be listed on digital exchanges where they have a pairing to other cryptocurrency. While Libra can be used for payments, they can also be traded for other cryptocurrency on digital exchanges.

A global bank will have plenty of power, but also require more responsibility. Facebook has already violated trust among its users by selling their data to third party. There are now also issues with privacy after Facebook admitted that it listens in to conversations in order to improve the service. Will consumers also be comfortable knowing that all their transactions are tracked on digital ledger that is controlled by a sort of oligarchy i.e. The Libra Association. The problem is that there is so much lack of transparency, users would not have been aware of what is happening. The Libra Association claims they will move to a more permissionless and decentralized system by moving to the PoS (Proof-of-State) consensus. They also want to guarantee that there is transparency and immutability like in any other blockchain. Libra may be good for users in general, but earning trust is the issue. Whether or not Facebook is up to the task remains to be seen.

Blockchain Interoperability – Cross-Chain Compatibility Among Dissimilar Blockchains

It seems inevitable that there will be many different tokens running on dissimilar systems. Unfortunately, these tokens will have their own blockchains. The good news is that they all run over the same IP based network. This allows a protocol layer to provide interoperability services to bridge various blockchains. This means a direct exchange of value from one cryptocurrency to another. As a result, atomic swaps will become possible across borders and payments can be instantaneous among tokens.

There are many different types of blockchains today and they are very much silos of their own ecosystem. There is no universal way to interoperate other than thru digital exchanges. The currency is often paired with a stablecoin to try and peg the value as close to fiat or with major cryptocurrency like BTC. The problem is that some pairings just don’t exist. The inconvenience here is the user will have to exchange their token to a supported pairing on their exchange first in order to make it useful. For example suppose there is no direct conversion between MyCoin and ANewCoin. Most of you know the drill. You have to buy into an exchange with fiat a supported cryptocurrency, and in most cases it will be BTC or ETH. It is only after you have bought that can you convert to MyCoin to get ANewCoin. Imagine all that happening with just a few finger swipes on screen or mouse clicks and all behind the scenes.

There are projects like Wanchain and Cosmos that focus on blockchain interoperability. They have an Application Layer (DApps, website, smart contract, etc.) that can interact with their software at the Interoperability Layer. This provides an API into the Blockchain Layer itself ubiquitously without the users doing anything else. It is simplified for a more pleasant user experience. Making it more user friendly leads to greater adoption of technology due to ease of use.

A good way to envision this is let’s say you are an ETH holder. You are interested in buying a luxury watch directly from a seller that is valued in BTC. Instead of exchanging ETH for BTC at a digital exchange and then pay for the item, interoperability will allow you to pay directly using an app with ETH at BTC valuation. The conversion process takes place automatically thru the interoperability layer, quickly transferring value from the ETH blockchain to the BTC blockchain. The seller gets paid and the item is delivered to the buyer. Certain programming interfaces can also create smart contracts for these type of transactions to release the item for delivery upon receipt of payment.

All that is required is software that can understand the different protocols. While it would appear to be a centralized settlement layer, it is actually not. It remains decentralized because the processing is done by not one organization, but different trustless nodes that run the software. These nodes are computers that belong to people who don’t know each other. All they have in common is that they are running the same software over the same network. Transactions are then processed by these nodes and incentivized for it.

Critics might quickly say that these systems are not scalable because blockchains are slow and cumbersome databases. You can argue that, but it still provides cryptographic security which is very important in value based transactions. There are new ways to settle payments that provide both on-chain and off-chain solutions to address scaling issues. An example of this are Bitcoin’s Lighting Network and Ethereum’s Raiden Network. By moving micro transactions like instant payments off-chain, the idea is to scale to larger volumes since the payments can be handled without going through a tedious consensus process like Proof-of-Work. Interoperability will have support for these types of systems as well.

Interoperability among the major public blockchains, will allow seamless, reliable and more efficient transactions for users. It is similar to how we communicate today. English provides a bridge among many countries because it is widely spoken and understood. The English language would be like the protocol for communications used on blockchains for interoperability. This is the ideal vision of a digital economy where transfer of value is frictionless and not complicated, regardless of cryptocurrency.

The Bitcoin Binance Hack And The Lessons Learned

At the time of this writing it is the start of blockchain week In New York City. One of the hot topics that will be discussed has to do with the most recent Binance hack that led to $40.7 Million of stolen Bitcoin (worth 7,000 BTC at the time of the incident). This is actually not the first time Binance has been hacked, they have a track record. Despite their concern for cybersecurity, it seems their system is not really that secure. This is not to say that Binance does not take cybersecurity seriously, because they do. They implement a 2FA type of authentication which requires using either an authenticator that generates a random code or the code is sent via an SMS text message to a smartphone. It is pretty secure after the fact, yet it was foiled time and time again. At this point the best that Binance can do is to track the stolen BTC and get the cooperation of other digital exchanges to freeze the funds. We actually know which address moved the coins (The transaction was traced from this link).

Fortunately, Binance has what it calls a SAFU (Secure Asset Fund for Users) which is a way of providing an insurance to users on the exchange in case of emergency. Changpeng Zhao or CZ, Binance CEO, has guaranteed that those who lost Bitcoin from the hack will be compensated for their losses. That is good to know, but will this be the end of these type of hacks? It has already happened before, so there is likelihood that it can happen again. That is unless Binance will add new security measures that tighten their systems even more. Then that gives hackers a new problem to deal with.

Now here is what is concerning. In an official statement made by Binance regarding the hack:

“The transaction is structured in a way that passed our existing security checks. It was unfortunate that we were not able to block this withdrawal before it was executed. Once executed, the withdrawal triggered various alarms in our system. We stopped all withdrawals immediately after that.“

The fact that it “passed our existing security checks” is a cause for concern that is what they are working to improve. According to this Coindesk article, Binance is going to do a revamp of their security system. They will certainly look into improving their API for 2FA as well as their withdrawal validation process. If a hacker can easily hack a user’s API key or 2FA credentials, you don’t really have a secure system. It was probably not an easy feat for the hackers, so now Binance should make it even more difficult to decrease the likelihood of any successful breach.

Phishing attacks are one of the exploits hackers use to get information from users. Once they trick a user to giving them that information, the hackers then use it to access the exchange. That is really all you need to do to get past Binance’s security check. Binance implements withdrawal limits for unverified users but for those who are verified, the hacker can wipe out their entire balance on the exchange.

Other ways a Binance user account was compromised can be from spyware, keyloggers or remote viewing software like VNC. Having an antivirus and cyberbsecurity software installed on a computer can help detect these malware. Another way to foil these attacks is to not keep funds stored on an exchange. Using a cold storage (not connected to the Internet) on a hardware wallet provides more security. In fact, some smartphones like the HTC Exodus and Samsung Galaxy S10 provide hardware wallet support for cryptocurrency now. For the strictest security, keep your digital assets safe in cold storage and not on hot wallets or custodial services like digital exchanges.

According to CZ:

“We are working with a dozen or so industry-leading security expert teams to help improve our security as well as track down the hackers.”

That’s right. Binance is definitely going to need more help in cybersecurity to fix this problem. Remember, it is not the blockchain that got hacked, it is Binance’s system. Binance also announced support for hardware devices with 2FA, a more secure way to connect to Binance. A system like that would require hackers to have possession of the actual hardware device. Think of this as a sort of physical key, that only gives access to the user who owns it.

The risk of a more digital world is computer hacking. Binance has been successfully hacked in the past. A user lost 2 BTC when a hacker used the credentials from their hacked e-mail address. Another hack occurred in July 2018, which was a “potential” hack that led to the theft of $45 Million of Syscoin and dumping of BTC. It was not Binance’s direct fault, but more on the Syscoin wallet. Regardless, it was a system anomaly that Binance admins detected. Binance immediately shutdown and then reset their API keys. That’s exactly what they did with the most recent hack. It seems that the answer to the problem is just shutting down and resetting everything. However, that does not solve the problem apparently.

Due to this large loss of BTC, someone from the BTC development community reached out to CZ. A suggestion was made to reorg the BTC blockchain and give back the stolen funds to their respective owners. Now the reaction to this was not good at all and thankfully, CZ decided not to do this. That would require Binance to use a “51% attack” to gain majority hashing power on the Bitcoin network to overturn transactions. The problem with this is an ethics issue because it would require Binance to get a consensus among miners and nodes on the network to support this plan. It goes against the main ideology of the blockchain, which is about decentralization and immutability. When you get a collusion of miners to provide Binance with majority hashing power, it centralizes the network to benefit one organization. This may also lead to inconsistencies on the blockchain if several bad actors try to mine on their own chain to gain control of the network. The idea that a consortium of miners with hashing power can overturn a trnsaction goes against immutability on the blockchain. It would be a terrible idea to do this.

The result of a reorg may lead to more factions in the Bitcoin community. There might even be a fork and this is not going to be good for the price of BTC as a store of value. It may even ruin the market leading to turmoil and massive sell offs as users collect their money. There needs to be a clear direction for BTC and a reorg is probably not in everyone’s best interest since it really only benefits Binance and the hacked accounts. This is not a consensus of the network’s interests.

The good thing is that the hack did not affect BTC prices. FUD didn’t lead to any massive dump or sell off, proving that there is confidence in the market. Taking care of the real problem, which is cybersecurity, is what needs to addressed. Binance vows to increase their security which is the most important feature right now for any digital exchange. Users need their funds to be safe from hackers, so this is going to be the responsibility of digital exchanges.

The Smartphone, Your Next Digital Wallet

The smartphone has become our digital Swiss army knife. We use it not only to make calls, but to send text messages, check the latest traffic conditions, get update on the weather, read the news, make electronic payments and take photos. I know people who would not survive a day unless they have their smartphone. In the Digital and Information Age, it has become a necessity of modern living.

What if you were told that smartphones can also use cryptocurrency for making payments and transactions? That would make it your digital wallet. The integration of cryptocurrency with smartphones are a precedent for mass adoption and this allows for more convenient ways to manage digital assets. It makes perfect sense if you think about it. Currently you would need a hardware wallet for fully securing your cryptocurrency from online hacking. Applying that same device on a smartphone adds more convenience and utility since it is integrated with something you use everyday rather than being separate.

Bringing cryptocurrency to smartphones is happening in different ways. All these products are targeted at mobile users. They are either directly wired as part of the smartphone’s electronics or can be installed as a DApp (distributed application). Let’s go over some of those applications.

HTC Exodus

HTC has a special smartphone that integrates with the blockchain, to protect your digital assets called Exodus. The phone itself is great, but it is the cryptocurrency support features that is really the selling point for it. The Exodus provides the Zion Vault Trusted Execution Environment that allows users to hold their own private keys. It tries to remove the hassle of creating your own digital wallet so this is really good for beginners. You start by entering a 6-digit pin, then get a 12-digit recovery phrase and you are all set. The recovery phrase is very important in case you get locked out or forget your pin. Write it down on a piece of paper or take a screenshot of it and store it safely and securely. The Exodus also has a way to allow your social contacts to help in recovery in case something really serious happens using a feature called Social Key Recovery.

The thing to know here is that your Zion Vault is not tied to a personal account like Facebook or Google. You are your own sovereign identity of your account. Not even HTC controls it. This means that you are in full possession of your digital assets, which is why it is important that security features are in place to keep it safe from hacking or vulnerable situations. Your private keys are stored in hardware, not software, much like using a hardware wallet. This makes it harder for hackers to steal since it cannot be targeted on the network.

The Exodus is also a device compatible with Web 3.0 applications. This takes us from the semantic web to a more intelligent web. Since the Exodus is also blockchain-centric, it brings a world of innovation at your fingertips. A more secure way to trade is certainly a benefit for using the Exodus. You can be anywhere that has a connection to the Internet and use your smartphone to trade and make payments at your convenience. The added layer of security that HTC has put in place is what gives peace of mind while using it.

Samsung Galaxy S10

A cryptocurrency wallet feature has been available on the SamsungGalaxy S10model smartphone. I was confused at first at what Samsung was up to then I realized they were going to integrate a cryptocurrency wallet that will also hold private keys on the device. Much like the HTC Exodus, it aims to secure and protect your digital assets stored on your smartphone. Hodlers will be able to store their Ethereum private keys in a cold storage type of digital wallet. That means it is stored directly in the smartphone and not on the Internet. Your actual digital asset is actually always on the blockchain as a data value of your balances. Other coins the wallet supports are the Cosmo Coin and a gaming cryptocurrency called Enjin.

Samsung’s crypto feature uses an app called Samsung Blockchain KeyStore. It is limited in availability upon its first release. Not all countries where you can buy the S10 will have support for the wallet, though it is clear the feature will be available in South Korea and the US. How it expands this feature remains to be seen as it is going to be a competitor with other hardware wallets. Samsung has apparently investedin one of them, Ledger Nano as reported by Cointelegraph.

According to Samsung:

“Galaxy S10 is built with defense-grade Samsung Knox, as well as a secure storage backed by hardware, which houses your private keys for blockchain-enabled mobile services.”

It just didn’t seem to be that secure. It has reportedly been hackedalready. It wasn’t the actual digital wallet that was hacked, it was the fingerprint sensor. That does give bad actors a way to access your private keys should your smartphone fall into the wrong hands. That is some news for concern that Samsung will have to address, but the responsibility will rest on the owner of the smartphone eventually. Keeping their smartphone physically secure is still the best way to prevent this.

Sirin Labs Finney

Sirin Labs lays claim to developing the first blockchain-enabled smartphone, ahead of HTC. It just so happens that HTC was the first to release their product commercially. The Finney has a built-in hardware wallet for storing private keys safely and access to a DApp to manage your digital assets. Finney is also from an open source project that has its own coin called SRN which can be used to purchase the smartphone.

The main feature that Finney has crypto enthusiasts excited about is that it provides a Token Conversion Service, which enables automatic exchanges between supported tokens and coins. This removes the use of digital exchanges like Binance and Coinbase to convert from one cryptocurrency to another. The last I checked the supported coins on the Finney include Bitcoin (BTC), Ethereum (ETH) and Sirin’s own SRN.

Perhaps it is the robust cybersecurity features that make Finney a serious contender for blockchain smartphone. Sirin Labs claims military grade security with intrusion prevention and encrypted messaging features. This gives the Finney additional advantages in features that help in securing your digital assets.

Opera Browser

Perhaps it is the Opera browser which provides the easiest way to get cryptocurrency. It is the first major browser to provide blockchain integration with a digital wallet. At the moment it only supports Ethereum, but there are plans to support other cryptocurrency. It is as simple as installing the Opera browser on an Android device (supported) and coming to iOS devices as well. What I like about the Opera cryptowallet is its ease and accessibility. It is just one touch away from your Android screen. You don’t need to configure anything else, the cryptowallet has already been set up and ready for use.

The integrated cryptowallet in Opera is an example of a Web3 application. This brings the security of the blockchain to the openness of the world wide web. Even the web’s founder Tim Berners-Lee believes that Web3 applications are going to very useful. The benefits you get with using the Opera cryptowallet is direct P2P (peer-to-peer) payments to other people, merchants and trading on digital exchanges. You have your own bank in your browser on your smartphone. Another good thing the wallet supports are digital collectibles like ERC721 and tokens like ERC20. This makes it easy to use without having to code a smart contract on the Ethereum network.

Mobility On The Blockchain

All these applications are targeted for mobility on the blockchain. What better way than to implement it on a smartphone. There are other types of apps available now that you can install on your smartphone that provide similar functionality. They will either provide you with full ownership of your private keys, offer a cold wallet function or in some cases a custodial wallet service (your private keys are kept by the service provider). Depending on how much control you want, there is an app available for it.

It is important to remember that you cannot recover your digital assets on the blockchain if you forget your password or passphrase or do not know your recovery phrase. HTC provides different ways to recover it but on Opera if you don’t have the 12-word recovery phrase (you can find this by selecting the “Backup phrase” option) your funds are gone since Opera does not have a way to recover it for you. These are the drawbacks of having complete ownership of your cryptocurrency.

Another use of these features are to access DApps, a collection of decentralized applications all over the Internet. Developers are building on top of the Ethereum platform in different ways. This is a showcase of the software that allows users to execute smart contracts that perform a service or to just enjoy playing games. So it provides a portal to access common DApps from Cryptokitties to DEX (Decentralized Exchanges).

Ease Of Use

One of the main complaints new users have is that using cryptocurrency is not intuitive and user friendly. The HTC, S10 and Opera browser are providing an easy way to get on-board. It should be easy enough for everyone to use. Its usefulness can all start with being able to simply buy a cup of coffee. When more applications like these become available and easier to use, then we have greater adoption.

New products that can quickly on-board users to cryptocurrency can lead to more liquidity in the market. As more people adopt it, there is also the growth in hype that can at times be misleading. Newbies to cryptocurrency may not fully understand how volatile the market is and what its real world uses are. For that reason, marketing these products is good for the hype. In the long run however, it is going to be whether cryptocurrency are going to be commodities needed for every day life. Then surely we already have a device we can use for it, the smartphone.