Blockchain

Mass adoption would ruin cryptocurrencies. Keep it in a niche

Published

5 months ago

14 June, 2024

Mass adoption would ruin cryptocurrencies. Keep it in a niche

Cryptocurrencies would be better off remaining a niche.

The biggest cryptocurrency crisis so far has been, without a doubt, the rapid decline and tremendous fall of FTX. At the time of the collapse of what turned out to be Sam Bankman-Fried’s personal piggy bank, it was the third largest cryptocurrency exchange. Its demise sent shockwaves across the industry, bringing down not just prices but a host of companies.

Note: The opinions expressed in this column are those of the author and do not necessarily reflect those of CoinDesk, Inc. or its owners and affiliates.

This article is excerpted from The Node, CoinDesk’s daily roundup of the top stories in blockchain and cryptocurrency news. You can sign up to get the full service newsletter here.

At the time, in late 2022, it was unclear whether the cryptocurrency concept would ever recover: the blatant fraud of what was until then one of the most reliable and consumer-friendly cryptocurrency companies seemed to confirm the widespread assumption that all of this it was just a ruse to hide a fraud.

Today, things are improving, although there remains a pervasive fear that the industry is repeating old mistakes and is headed for another punishment. For veteran cryptocurrency investors and observers, this is and always has been normal: since the 2014 bitcoin {{BTC}} market crash, following the Mt. Gox bust, and subsequent reboundthe cyclical nature of the market has been an accepted part of life.

But isn’t it strange that this maturing industry has normalized these boom-and-bust cycles? It seems to me that the mass adoption of any blockchain or consumer application depends on whether the price of its token – or the industry itself – is not always at risk of imminent collapse.

And that’s the point. To a large extent, the biggest problem with the growth of cryptocurrencies is the growth of cryptocurrencies. This whiplash between euphoria when markets rise and despair when they fall, every four years or so, is the result of cryptocurrencies’ quest for mass adoption.

Gross adoption

The process is clear, a textbook case for economist Robert Shiller “irrational exuberance.” Promises to reinvent everything from money to the Internet itself pique interest. People believe in the dream of decentralization (or, for many, the promise of easy money). Popularity drives prices up, which reflexively it drives them up further as more and more people invest, until something breaks.

Almost always, the things that fail are the things that blockchains were built to mitigate or replace. And these things, almost always, were built to make cryptocurrencies attractive and/or easy to use. It is not an uncommon opinion that “the masses” will probably not self-guard. But without self-custody, what’s the point of something like Bitcoin?

The story continues

“The risk of growing adoption is that new entrants are unaware of the core tenets of Bitcoin: decentralization, self-custody, hard money, etc. If new entrants do not learn, understand, and espouse these core beliefs, the characteristics that make them these realities may not remain in the protocols over time,” said Alex Thorn, head of corporate research at investment bank Galaxy Digital.

See also: A hymn to LocalBitcoins | Opinion

Adoption means respecting the law (which is often at odds with cryptocurrency values) and creating easy-to-use logins and logins (which can be compromised). There is a tension – if not a direct competition – between the goals of decentralization and mass adoption. Grow cryptocurrency too much and you risk destroying what it is actually useful for. “Just bending to the dominant financial system ends up giving away a lot of the opportunities that matter with this technology,” said Nathan Schnieder, a professor of media studies at the University of Colorado Boulder and author of “Governable Spaces.”

It’s a point echoed by University College Dublin lecturer Paul Dylan-Ennis, who said that “cryptocurrency is a subculture that can’t accept being a subculture. Most of our problems stem from how talking about “onboarding the next billion” makes us decay our values.”

Always there

There is a certain irony in the fact that developers, founders and investors have spent 15 years and billions of dollars searching for a “killer app” for blockchain, yet it already has one.

Satoshi Nakamoto, and those who actually follow in his footsteps, have built digital tools that can be used in any way and cannot (easily) be taken away.

That’s all. This is the whole point of cryptocurrencies.

That’s why, while almost no one pays for coffee with bitcoin, many use the privacy coin monero {{XMR}} to buy this or that on the darkweb. If you look at how cryptocurrencies are actually used to connect with the real economy, you will see that these are essentially niche areas. These include black or gray markets, Stablecoin remittance corridors AND hobby activities.

Mind you, these are huge markets. But today, as in other times when cryptocurrencies appear to be on the verge of breaking out, this use pales in comparison to the speculative use of cryptocurrencies, where capital comes in, jumps from coin to coin or protocol to protocol, and causes the number to rise – essentially creating a circular economy.

Alright then. Gambling is a use case to some extent. But if people want cryptocurrencies to be used productively, developers, founders, and investors should work for the people who have a real need for money and censorship-resistant tools. Almost by definition, this is a limited audience.

This is just my opinion. Many disagree.

Other points of view

Molly White, author of the critical crypto news stories Web3IsGoingGreat and “Citation Needed,” argues that crypto is already mainstream. “There are individual projects that are still small and niche, but with Brian Armstrong and Sam Bankman-Fried rubbing shoulders in Congress and BlackRock and Fidelity launching bitcoin ETFs, I think the ship has probably sailed,” she said in a direct message.

Privacy advocate, educator, and monero superuser SethforPrivacy sees things differently. The “unfortunate reality is that most people do not yet realize the need for Bitcoin nor are they willing to take on as much personal responsibility, and as such we must focus our efforts on improving Bitcoin for those who do. Today,” he said.

See also: In defense of meme coins | Opinion

It is also argued that decentralization is the very reason why cryptocurrencies will go global, so to speak.

“The ONE thing that makes Bitcoin’s global rise possible is its most cypherpunk attribute: it is owned by no one and is run by users, not states or corporations,” said Alex Gladstein, chief strategy officer at Human Rights Foundation.

However, it is not exactly clear what the masses want. Ethereum advocate Emmanuel Awosika, for example, admits that “while we believe *everyone* wants privacy, censorship resistance, and protection against nation-state attacks, some people are fine with a product that solves a problem and has good UX.”

While not everyone needs, let alone wants, privacy, resistance to censorship and maximum decentralization, Awosika added: “We should explore the possibility of putting cryptocurrencies in the hands of as many people as possible.”

Likewise, Roko Mijic, of “Roko’s basilisk” fame, argued that it’s actually scale that gives decentralized tools any power, which is evidently true as Bitcoin is difficult to attack because it has miners spread across the world. “You can’t resist censorship from within a small-scale crypto network because the government will simply destroy the entire network,” Mijic said.

Justin Ehrenhofer, founder of Moonstone Research in Chicago, echoed this sentiment, pointing out that a currency is only useful if it is widely accepted, and therefore “cypherpunks should focus on building systems that attract outsiders.” However, he added that “with widespread adoption” there has been a degradation of the spirit of cryptocurrencies, as the average user stores their wealth in custodial exchanges.

I guess the question is, how valuable are cryptocurrency fundamentals?

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Related Topics:bitcoin Decentralization Mass adoption

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Blockchain

Bitcoin (BTC) Price Crashes as Donald Trump’s Win Odds Dip

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

Markets received nominally good news on Thursday morning, with the US ISM manufacturing PMI for July falling much more than economists expected, sending interest rates to multi-month lows across the board. Additionally, initial jobless claims in the US jumped to their highest level in about a year. Taken together, the data adds to the sentiment that the US is on the verge of a cycle of monetary easing by the Federal Reserve, which is typically seen as bullish for risk assets, including bitcoin.

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Blockchain

Terra Blockchain Reboots After Reentry Attack Leads to $4M Exploit

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

Terra Blockchain Reboots After Reentry Attack Leads to $4M Exploit

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CoinDesk is a awarded press agency that deals with the cryptocurrency sector. Its journalists respect a rigorous set of editorial policiesIn November 2023, CoinDesk has been acquired from the Bullish group, owner of Bullisha regulated digital asset exchange. Bullish Group is majority owned by Block.one; both companies have interests in a variety of blockchain and digital asset businesses and significant digital asset holdings, including bitcoin. CoinDesk operates as an independent subsidiary with an editorial board to protect journalistic independence. CoinDesk employees, including journalists, are eligible to receive options in the Bullish group as part of their compensation.

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Blockchain

$6.8M Stolen, ASTRO Collapses 60%

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

In the latest news in the blockchain industry, there has been a turn of events that has severely affected Terra and its users and investors, with the company losing $6.8 million. The attack, which exploited a reentry vulnerability in the network’s IBC hooks, raises questions about the security measures of the once celebrated blockchain protocol.

A web3 security company, Cyvers Alerts reported that the exploit occurred on July 31st and caused the company to lose 60 million ASTRO, 3.5 million USDC500,000 USDTand 2. 7 BitcoinThe flaw was discovered in April and allows cybercriminals to make payments non-stop by withdrawing money from the network.

Earth’s response

Subsequently, to the hack employed on the Terra blockchain, its official X platform declared the Suspension network operations for a few hours to apply the emergency measure. Finally in its sendTerra’s official account agreed, sharing that its operations are back online: the core transactions that make up the platform are now possible again.

However, the overall value of the various assets lost in the event was unclear.

Market Impact: ASTRO Crashes!

The hack had an immediate impact on the price of ASTRO, which dropped nearly 60% to $0.0206 following the network shutdown. This sharp decline highlights the vulnerability of token prices to security breaches and the resulting market volatility.

This incident is not the first time Terra has faced serious challenges. Earlier this year, the blockchain encountered significant problems that called into question its long-term viability. These repeated incidents underscore the need for stronger security measures to protect users’ assets and maintain trust in the network.

The recent Terra hack serves as a stark reminder of the ongoing security challenges in the blockchain space. As the platform works to regain stability, the broader crypto community will be watching closely.

This is a major setback for Terra. How do you think this will impact the blockchain industry?

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Blockchain

Luxembourg proposes updates to blockchain laws | Insights and resources

Published

4 months ago

1 August, 2024

BlockChainBulletin Staff

Luxembourg proposes updates to blockchain laws | Insights and resources

On July 24, 2024, the Ministry of Finance proposed Blockchain Bill IVwhich will provide greater flexibility and legal certainty for issuers using Distributed Ledger Technology (DLT). The bill will update three of Luxembourg’s financial laws, the Law of 6 April 2013 on dematerialised securitiesTHE Law of 5 April 1993 on the financial sector and the Law of 23 December 1998 establishing a financial sector supervisory commissionThis bill includes the additional option of a supervisory agent role and the inclusion of equity securities in dematerialized form.

DLT and Luxembourg

DLT is increasingly used in the financial and fund management sector in Luxembourg, offering numerous benefits and transforming various aspects of the industry.

Here are some examples:

Digital Bonds: Luxembourg has seen multiple digital bond issuances via DLT. For example, the European Investment Bank has issued bonds that are registered, transferred and stored via DLT processes. These bonds are governed by Luxembourg law and registered on proprietary DLT platforms.
Fund Administration: DLT can streamline fund administration processes, offering new opportunities and efficiencies for intermediaries, and can do the following:
- Automate capital calls and distributions using smart contracts,
- Simplify audits and ensure reporting accuracy through transparent and immutable transaction records.
Warranty Management: Luxembourg-based DLT platforms allow clients to swap ownership of baskets of securities between different collateral pools at precise times.
Tokenization: DLT is used to tokenize various assets, including real estate and luxury goods, by representing them in a tokenized and fractionalized format on the blockchain. This process can improve the liquidity and accessibility of traditionally illiquid assets.
Tokenization of investment funds: DLT is being explored for the tokenization of investment funds, which can streamline the supply chain, reduce costs, and enable faster transactions. DLT can automate various elements of the supply chain, reducing the need for reconciliations between entities such as custodians, administrators, and investment managers.
Issuance, settlement and payment platforms:Market participants are developing trusted networks using DLT technology to serve as a single source of shared truth among participants in financial instrument investment ecosystems.
Legal framework: Luxembourg has adapted its legal framework to accommodate DLT, recognising the validity and enforceability of DLT-based financial instruments. This includes the following:
- Allow the use of DLT for the issuance of dematerialized securities,
- Recognize DLT for the circulation of securities,
- Enabling financial collateral arrangements on DLT financial instruments.
Regulatory compliance: DLT can improve transparency in fund share ownership and regulatory compliance, providing fund managers with new opportunities for liquidity management and operational efficiency.
Financial inclusion: By leveraging DLT, Luxembourg aims to promote greater financial inclusion and participation, potentially creating a more diverse and resilient financial system.
Governance and ethics:The implementation of DLT can promote higher standards of governance and ethics, contributing to a more sustainable and responsible financial sector.

Luxembourg’s approach to DLT in finance and fund management is characterised by a principle of technology neutrality, recognising that innovative processes and technologies can contribute to improving financial services. This is exemplified by its commitment to creating a compatible legal and regulatory framework.

Short story

Luxembourg has already enacted three major blockchain-related laws, often referred to as Blockchain I, II and III.

Blockchain Law I (2019): This law, passed on March 1, 2019, was one of the first in the EU to recognize blockchain as equivalent to traditional transactions. It allowed the use of DLT for account registration, transfer, and materialization of securities.

Blockchain Law II (2021): Enacted on 22 January 2021, this law strengthened the Luxembourg legal framework on dematerialised securities. It recognised the possibility of using secure electronic registration mechanisms to issue such securities and expanded access for all credit institutions and investment firms.

Blockchain Act III (2023): Also known as Bill 8055, this is the most recent law in the blockchain field and was passed on March 14, 2023. This law has integrated the Luxembourg DLT framework in the following way:

Update of the Act of 5 August 2005 on provisions relating to financial collateral to enable the use of electronic DLT as collateral on financial instruments registered in securities accounts,
Implementation of EU Regulation 2022/858 on a pilot scheme for DLT-based market infrastructures (DLT Pilot Regulation),
Redefining the notion of financial instruments in Law of 5 April 1993 on the financial sector and the Law of 30 May 2018 on financial instruments markets to align with the corresponding European regulations, including MiFID.

The Blockchain III Act strengthened the collateral rules for digital assets and aimed to increase legal certainty by allowing securities accounts on DLT to be pledged, while maintaining the efficient system of the 2005 Act on Financial Collateral Arrangements.

With the Blockchain IV bill, Luxembourg will build on the foundations laid by previous Blockchain laws and aims to consolidate Luxembourg’s position as a leading hub for financial innovation in Europe.

Blockchain Bill IV

The key provisions of the Blockchain IV bill include the following:

Expanded scope: The bill expands the Luxembourg DLT legal framework to include equity securities in addition to debt securities. This expansion will allow the fund industry and transfer agents to use DLT to manage registers of shares and units, as well as to process fund shares.
New role of the control agent: The bill introduces the role of a control agent as an alternative to the central account custodian for the issuance of dematerialised securities via DLT. This control agent can be an EU investment firm or a credit institution chosen by the issuer. This new role does not replace the current central account custodian, but, like all other roles, it must be notified to the Commission de Surveillance du Secteur Financier (CSSF), which is designated as the competent supervisory authority. The notification must be submitted two months after the control agent starts its activities.
Responsibilities of the control agent: The control agent will manage the securities issuance account, verify the consistency between the securities issued and those registered on the DLT network, and supervise the chain of custody of the securities at the account holder and investor level.
Simplified payment processesThe bill allows issuers to meet payment obligations under securities (such as interest, dividends or repayments) as soon as they have paid the relevant amounts to the paying agent, settlement agent or central account custodian.
Simplified issuance and reconciliationThe bill simplifies the process of issuing, holding and reconciling dematerialized securities through DLT, eliminating the need for a central custodian to have a second level of custody and allowing securities to be credited directly to the accounts of investors or their delegates.
Smart Contract Integration:The new processes can be executed using smart contracts with the assistance of the control agent, potentially increasing efficiency and reducing intermediation.

These changes are expected to bring several benefits to the Luxembourg financial sector, including:

Fund Operations: Greater efficiency and reduced costs by leveraging DLT for the issuance and transfer of fund shares.
Financial transactions: Greater transparency and security.
Transparency of the regulatory environment: Increased attractiveness and competitiveness of the Luxembourg financial centre through greater legal clarity and flexibility for issuers and investors using DLT.
Smart Contracts: Potential for automation of contractual terms, reduction of intermediaries and improvement of transaction traceability through smart contracts.

Blockchain Bill IV is part of Luxembourg’s ongoing strategy to develop a strong digital ecosystem as part of its economy and maintain its status as a leading hub for financial innovation. Luxembourg is positioning itself at the forefront of Europe’s growing digital financial landscape by constantly updating its regulatory framework.

Local regulations, such as Luxembourg law, complement European regulations by providing a more specific legal framework, adapted to local specificities. These local laws, together with European initiatives, aim to improve both the use and the security of projects involving new technologies. They help establish clear standards and promote consumer trust, while promoting innovation and ensuring better protection against potential risks associated with these emerging technologies. Check out our latest posts on these topics and, for more information on this law, blockchain technology and the tokenization mechanism, do not hesitate to contact us.

We are available to discuss any project related to digital finance, cryptocurrencies and disruptive technologies.

This informational piece, which may be considered advertising under the ethics rules of some jurisdictions, is provided with the understanding that it does not constitute the rendering of legal or other professional advice by Goodwin or its attorneys. Past results do not guarantee a similar outcome.

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