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Coindesk Weekly

for the week ending April 14, 2019

Coindesk Weekly

It’s Not All About The Price

Bitcoin’s supporters and detractors are both missing the cryptocurrency’s true value proposition by focusing on its recent swing above $5,000, writes Michael J. Casey.

Read more in THE TAKEAWAY below.

THIS WEEK’S TOP STORIES

The NYDFS giveth, and the NYDFS rejecteth

The New York Department of Financial Services awarded its 19th BitLicense this week, to European crypto exchange Bitstamp. The startup, which was already operating within the U.S., now plans to expand its services with the new regulatory clearance. With the license, Bitstamp has approval to offer a fiat-to-crypto service for bitcoin, litecoin, bitcoin cash, ether and XRP.

On the flip side, NYDFS rejected Seattle-based crypto exchange Bittrex’s application the next day. The regulator outlined a host of concerns it had, ranging from the exchange’s compliance procedures to its token listing processes. Bittrex, in turn, claims that NYDFS’ letter omits crucial details, and that its internal policies have improved over the past two years.

Ban recommendation

A draft proposal from China’s economic planning commission labels bitcoin mining as an industry that needs to be “eliminated.” But this won’t automatically amount to an outright mining ban . Local governments are supposed to follow the commission’s guidance, but they need a state law to enforce before they can take actions. Further, past examples of “undesirable” industries have sometimes been re-categorized because phasing them out would conflict with local interests, and cryptocurrency miners are arguing that they soak up excess electricity that would otherwise go to waste.

Legal clarity

U.S. lawmakers are making a fresh attempt to give cryptocurrencies a clearer legal standing. U.S. Representative Warren Davidson reintroduced the Token Taxonomy Act on Tuesday, saying that the bill, if approved by Congress and signed into law, would “send a powerful message” to innovators that “the U.S. is the best destination for blockchain technology.” The bill, first introduced last year by Reps. Davidson and Darren Soto, seeks to exempt certain cryptocurrencies and other digital assets from federal securities laws, allowing individuals to more easily trade or transact with select coins. ​

Cash remittances

Money transfer giant Western Union has teamed up with blockchain startup Coins.ph to enable residents of the Philippines to more easily receive cash remittances. The newly inked deal will see both international and domestic payments made via Western Union’s network arrive directly into the digital wallets held by Coins.ph’s “over 5 million” users, the startup said. “There are many overseas Filipino workers who send money back home regularly and are always looking for additional remittance options,” said Coins.ph co-founder and CEO Ron Hose. 

New release

In a moment true bitcoin nerds have been waiting for, the coming release of the Bitcoin Core software will finally, natively allow users to connect full nodes to hardware wallets. The change marks a big step for user security, as bitcoin full nodes allow users to verify that transactions actually took place, while hardware wallets are considered one of the most secure ways to store bitcoin. Bitcoin Core lead maintainer Wladimir van der Laan, told CoinDesk it’s one of the features he’s been most excited about for some time. 

Stepping down

The head of the largest organized creditor group representing users of failed bitcoin exchange Mt Gox is stepping down amid what he described as a protracted legal quagmire that could take years to resolve completely . Andy Pag, the founder and coordinator of Mt. Gox Legal, told CoinDesk that he now believes ongoing legal issues – in particular, a single massive claim by startup incubator and former Mt. Gox partner Coinlab – may hold up the crypto exchange’s civil rehabilitation process for up to two more years. “I’ve decided I’d rather be happy and get on with my life,” Pag said.
 

SEE ALL COINDESK STORIES

QUOTE OF THE WEEK

"I don’t think that blockchains are good for many things. But, they are amazingly powerful for fraud-free payments.”
– Tyler Spalding, co-founder of payments startup Flexa, which is developing a protocol to help shoppers buy coffee and other everyday goods using bitcoin.
 

The Takeaway

Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.

Bitcoin’s out-of-the-blue bounce over the $5,000 mark this month has prompted some predictable pontificating from price-obsessed people within and outside the cryptocurrency community.

Investors who are long cryptocurrencies have gleefully pronounced that the Crypto Winter, which began when bitcoin’s bubble burst at the end of 2017, is now mercifully over. The most optimistic are forecasting a rerun of bitcoin’s fall 2015 bounce from its prior post-bubble collapse, which sent it not only back above its 2013 high of $1,150, but all the way to a December 2017 peak of $19,500.

At the same time, bitcoin skeptics have pointed to the seeming lack of fundamental news behind the price rise and declared it meaningless. Typical of the genre, Matt Novak at Gizmodo penned an angry screed titled "Bitcoin Surges 15% Overnight Because Nobody Learned Their Lesson After the Last Crash." One of Novak’s insights: "To be clear, Bitcoin is absolutely worthless by any real measure. It’s fake money that’s about as practical to use in the real world as Monopoly bills."

Readers won’t be surprised to hear that I disagree with Novak’s simplistic rant, but I’m also turned off by the knee-jerk cheerleading from crypto traders whenever bitcoin’s price bounces. There’s something fundamentally wrong with reducing the measure of bitcoin’s worldwide importance to a price metric that’s denominated in a fiat currency that its advocates hope to replace. It pushes the debate into an inane all-or-nothing binary set of predictions: bitcoin is either going to zero or "to the moon."

What matters is that, 10 years after an unidentified software engineer created it, this decentralized system for recording sequences of transactions continues to do its job, block after block, with no authority in charge, no user able to alter past transactions, and no person or entity able to shut it down. The more this goes on, the more it reinforces the powerful vision behind bitcoin: a peer-to-peer, disintermediated system for exchanging value around the world. And in that context, we can also think of bitcoin the cryptocurrency – differentiated from bitcoin the system – as a unique, provably scare digital asset that expresses the overall value in that vast potential.

Bitcoin is valuable because it exists

A point that’s lost on critics like Novak is that the longer bitcoin simply survives – in the face of the $90 billion valuation that stands as a de facto bounty for hackers to try to take it down, compromise its security or corrupt it – the more its overall value is confirmed. Bitcoin is progressively proving itself to be an unstoppable, digital system of global exchange, one that functions outside of the traditional national government-mandated system of currency and banking. That status is what gives bitcoin its value.

Of course, the global impact of the bitcoin value exchange system, and therefore its worth to humanity, will be significantly enhanced if adoption advances to a much wider scale and it is used frequently in the world’s transactions. And, yes, a great deal of development work is still needed if it is to ever reach that point.

(Some recent technological leaps such as the Lightning Network and the emergence of decentralized, non-custodial asset exchange technologies offer hope that this scaling challenge can be achieved, though nothing is guaranteed.)

However, widespread adoption in payments is not necessary for bitcoin to have value. To understand why that’s the case, it’s useful to think about gold, to which bitcoin is often compared.

The power of common belief

Similar to bitcoin, gold is a mutually agreed store of value that, for all intents and purposes, lies outside the control of nation-state governments and banks. It’s not widely used as a day-to-day currency, but it does enjoy a widespread, shared belief in its value.

Where does gold’s value come from? The answer is somewhat tautological: it comes from that same widely held belief, from a shared understanding in gold’s capacity to function as a depoliticized global system of exchange that’s free of manipulation. Sure, we tend to think of gold in terms of its material qualities: that it’s durable and that it’s shiny in a way that connotes beauty. But its lasting worth really derives from the more esoteric notion that human beings have for a long time deeply held a shared belief in its value.

That belief has turned gold into a system for protecting property, a system used through the centuries by refugees, dissidents and investors for moving and storing value and for hedging against lost spending power. That we now have a digital version of this concept, one that’s designed for the borderless, Internet-shaped world of the 21st century, is a big deal.

When dealing with debates over bitcoin’s value, it’s also worth going a little way down the rabbit hole of thinking about what money actually is. Not everyone agrees on a definition, but I think it’s useful to think of money as a societally agreed system for storing and exchanging value. The system has to have certain properties for people to reach this agreement – it must fungible, durable, transferable, divisible, etc. – but it’s the agreement itself that gives it its value.

Here, too, is where many of bitcoin’s detractors get lost. Fixating on the misplaced idea of money as a thing, they exclaim that bitcoin can’t have any value as it isn’t backed by anything. This, of course, also misses the fact that it is backed by the energy and other resources that miners spend to do the computational work needed to secure the bitcoin ledger. But the bigger point is that bitcoin’s value, as with all forms of money, comes from the existence of a wide agreement in its potential use as a store of value and medium of exchange.

In bitcoin’s case, the agreement is arguably one that involves 35 million people, if Cambridge University’s latest survey of authenticated users is to be believed. This large level of participation is essentially why bitcoin holds a much greater value than the altcoins that are forks of its code.

So, this is why bitcoin at $5,000 is important, not because it’s a sign of that new investors are coming to push up its price again, but because it validates the core proposition of bitcoin’s resilience and promise. — Michael J. Casey


BEYOND COINDESK…

DECRYPT: Perhaps the most famous nocoiner in the crypto space is bitcoin skeptic David Gerard, author of “Attack of the Fifty Foot Blockchain” and prolific tweeter. Decrypt’s Ben Munster spoke to Gerard about his past and how he became a “crypto anti-influencer,” highlighting various facets of his current work in the process. In particular, Munster outlines how Gerard got his start in calling out what he sees as nonsense with the Church of Scientology (and accidentally started WikiLeaks in the process?) before moving into crypto years later.

BREAKER: The director of the new cryptocurrency-focused movie (titled “Crypto”) believes critics should reserve judgement until they’ve seen the film. John Stalberg Jr. spoke with Breaker’s Mark Yarm in advance of the film’s limited release last Friday, saying that the crypto community is portrayed by the movie’s heroes and not, as previously thought, by an incompetent villain. The film, Stalberg says, is sort of a ‘past-meets-future’ by contrasting the world of crypto with more traditional spaces.

THOMSON REUTERS FOUNDATION: The U.K.’s Princess Eugenie Victoria Helena of York and U.S. ambassador John Richmond believe that new technology such as blockchain-based platforms can help mitigate human trafficking, reports Kieran Guilbert for the Thomson Reuters Foundation (the Foundation is the philanthropic arm for Thomson Reuters). Modern technology has already proved a boon for traffickers, who use social media to recruit and may launder money through cryptocurrencies, but blockchain can also be leveraged to help victims. 

WHAT WE’VE BEEN UP TO

COINDESK WEBINAR ALERT: In markets, liquidity is everything. Or is it? In the next episode of CoinDesk’s Institutional Crypto webinar series, Noelle Acheson will talk to Max Boonen, founder and CEO of crypto liquidity provider B2C2, about what we’re getting wrong about OTC desks and how they are likely to evolve over the next few years. They will also touch on what the market is looking for in crypto derivatives, what the different instruments represent, and where future liquidity could come from.

Join us for this wide-ranging discussion on April 26th at 10:00am ET. You can sign up for free here.

What did people think of the new film Crypto, featuring Kurt Russell and Luke Hemsworth? Head over to our YouTube channel to find out if the entire movie received as much backlash as the trailer.

The newest episode in our ongoing "Road to Consensus" podcast series features Edward Woodford, CEO of Seed CX. He sat down with CoinDesk’s research director Nolan Bauerle to talk regulation and how to build for success. Also be sure to check out our last episode, in which Nolan spoke to "Crypto Dad," CFTC Chairman Christopher Giancarlo.

CoinDesk’s Construct event is back and it’s being held alongside Consensus on May 13-15 in New York City. Developers looking to learn about the biggest public and private blockchain technologies can register for Construct for only $299. 

Send feedback on CoinDesk Weekly to marc@coindesk.com or troll him on Twitter. We’ll see you here next Sunday. Thanks for reading!

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