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CWC Newsletter #2 (October 25, 2019)

By Taylor Ryker, Analyst

Top 10 Updates:

1. Bitcoin flaws are showing and it’s alarming. The large decrease in the bitcoin price this week, from the $8,000+ levels to between $7,000 and $8,000, is leaving analysts worried about the security of the bitcoin network. The miners who verify bitcoin transactions and mine for new bitcoins need the price to be above a certain level in order for their companies to survive. Bitcoin miners depend on selling their bitcoins, either mined or received from verifying transactions, to cover their electricity costs to power their expensive hardware and to constantly update their hardware to be able to effectively compete with other miners. One analyst, Dovey Wan, calculated that for bitcoin miners the breakeven price of bitcoin is between $7,100-$7,800 and anything below these prices will force miners to shut down their servers, which will inevitably make the bitcoin network less secure and more prone to attacks.

2. Bitcoin’s scalable technology is not working. Bitcoin was first championed as a digital peer-to-peer cash, but was unable to realize those goals due to its scalability problems. Bitcoin can only verify 4.6 transactions per second whereas other protocols, such as EOS, can verify thousands of transactions per second. Bitcoin’s scaling solution called the Lightning Network is not working as advertised. Technologists and analysts this week have revealed that the Lightning Network is centralized which goes against the decentralized value proposition of bitcoin, where no one can be in charge of your bitcoins.

3. Amazon Web Services was attacked and down on Wednesday October 23. Amazon Web Services (AWS), some analysts have declared, is the de facto infrastructure of the US internet network. In other words, the internet that the average person uses daily is largely due to the services of AWS. This past Wednesday, malicious attacks on AWS rendered many business websites inaccessible. The episode reveals the need for a decentralized internet that cannot be taken down. Even though some naysayers have declared EOS a glorified decentralized database, the irony is that there IS a need for a decentralized database that can replace AWS. More importantly, many of the largest banks such as Capital One use AWS. Earlier this year, a hacker accessed the Capital One network, but was luckily arrested before releasing sensitive information to the dark web (She was caught because she was bragging about her hack on various chatrooms). I would suspect that Fortune 500 companies are suspicious of the security and integrity of AWS in hosting their sensitive and confidential information. On Thursday Oct.24, Senators asked the Federal Trade Commission to investigate Amazon regarding the Capital One hack…I smell anti-trust or loss in confidence in AWS.

4. Phone Carriers are a Pain Point for Crypto Adoption. This week saw a sleuth of SIM-swapping hacks that left prominent crypto investors with compromised crypto wallets and outright theft. SIM-swapping is when a hacker impersonates their victim, goes to a phone carrier customer service representative, and asks for the victim’s SIM card to be transferred to the hacker’s phone. Either due to relaxed regulations, incompetency, or insider dealings, many of these hackers have been successful in using these customer service representatives to do their bidding. Hackers are now targeting people they suspect have cryptocurrency mobile wallets or authentication apps for cryptocurrency online exchanges. The main culprit carrier, AT&T, was recently sued for their incompetency, which resulted in one user losing $1.8 million dollars worth of cryptocurrency. Other famous celebrities, such as the founder of Twitter and other visible crypto investors, have been targets of SIM-swapping.

5. Popular Crypto Exchange Folds and Sold to Asian Investors. Due to choking US regulations and the overall crypto bear market, Circle (backed by Goldman Sachs) sold their popular US-based exchange, Poloniex, to Asian investors. Poloniex was the number one exchange in terms of daily volume transactions and daily active users in the US for the past several years. However, with increasing US regulations and other foreign exchanges becoming more popular in the world for users, Poloniex is akin to Microsoft Explorer in today’s internet landscape where Google Chrome, Mozilla, and Safari are more popular. This also signals to the fact that regulations outside of the US, especially in Asia such as Singapore and Hong Kong, are attracting crypto innovations that may leave the US in the dust. In addition, the selling of Poloniex reveals the fact that the number of US-based crypto exchanges is dwindling and will become an issue for US investors in the buying/selling of their holdings. This leaves Coinbase and Gemini as the two largest remaining exchanges that have good customer service and the trust of US investors.

6. Mark Zuckerberg’s Congressional testimony on Libra is met with skepticism. On Wednesday Oct. 23rd, Mark Zuckerberg testified in front of the House Financial Services Committee and was met with much congressional opposition. Zuckerberg attempted to stoke fears that if Libra, Facebook’s cryptocurrency platform, was not authorized to operate in the US and the world, it would provide the Chinese with the potential to monopolize the world with their own technology and digital monetary policies, such as the ubiquitous AliPay and WeChat pay. Many members of the House Committee believe that Facebook needs to deal with their own data-privacy issues before launching Libra, while others believe that any other company would be better suited in creating Libra than Facebook. Zuckerberg remains adamant that Libra should be launched and will work with US regulators to ensure that money laundering and terrorism won’t be aided with the creation of the Libra coin.

7. Telos, an EOS sisterchain, begins to attract attention of EOS community. With the supposed governance issues of the EOS mainnet, investors in the EOS ecosystem are becoming more excited about Telos, a clone and sisterchain of the EOS mainnet with a better governance model where large investors are not in control of the chain and where there is a better geographical distribution of the large miners who secure and upgrade the Telos blockchain.

8. Cracks in the Bonds Market May Incentivize Investors into Cryptocurrencies. (1) Bonds ratings firms go easy on some heavily indebted companies, such as Kraft Heinz, Newell Brands, and Campbell Soup. What this means is that in recent years, these companies have issued more corporate bonds with the same good ratings from Moody’s and the like. This indicates that the bonds-rating firms are allowing these companies to take on more debt, which in past decades would have lowered their good ratings. There is too much debt floating around in the economy, which is akin to a musical chairs game with the music almost ending. (2) The repurchase market has seen the influx of Federal Reserve money in the hundreds of billions, the last time was in the aftermath of the 2008 Recession to infuse more liquidity and capital into distressed markets. (3) Many government/sovereign bonds around the world are now in the negative interest rate zone, which means that investors have to pay the government to park their money in bonds. (4) This may be the incentive for investors and traders to begin to look hard into parking their pension funds and liquidity into cryptocurrencies.

9. Online Influencers Are Less Attractive Now to Advertisers. Billions of dollars are paid to social-media personalities to pitch products in an influencer economy riddled with deceit. For many social media influencers, advertisers have discovered that their followers, subscribers, and viewers may have been bought or have been inflated. This speaks to the need for advertisers to be able to verify and validate social media influencer’s claims of their public reach. With Facebook attempting to monetize their social media platform through the creation of Libra, I suspect that advertisers are influenced to look towards cryptocurrency platforms (read: EOS’s social media platform called Voice) that can resolve the rampant deceit and provide a better link between their advertising products/services to their customers.

10. Ethereum Upgrades Disappoint vs. EOS’s High Performance. With the long awaited Ethereum upgrades to address scalability issues, slow transactions, and governance consensus flaws, the creator of Ethereum, Vitalik Buterin, wrote four blog posts detailing the overall upgrades. Analysts view the upgrades with skepticism and have issued 5 takeaways: (1) moving Ethereum coins from the new platform to the old platform may be possible in the early months (or years) after launch, (2) data applications will become more expensive on the new network, (3) upgrades will change the ways in which developers and traders manage decentralized applications causing costly difficulties, (4) upgrades may possess only about half the transaction capacity as originally planned, and (5) the upgrade is still a work in progress. With these less than optimal conditions, EOS’s creator Dan Larimer mentioned that the latest upgrades to EOS is up to twice as fast as WAVM, which is the current industry’s fastest data compiler, in other words the “engine” to a sportscar. Larimer and his developer team have been producing ground-breaking blockchain technologies that have enhanced the viability for EOS to support large commercial decentralized applications.

Disclaimer: KJ Kingsley is not a financial advisor and holds the digital tokens or cryptocurrencies represented in the content above. This content is for informational purposes only, you should not construe any such information or other material as legal, tax, investment, financial, or other advice. Nothing contained in this post constitutes a solicitation, recommendation, endorsement, or offer by myself to buy or sell any securities or other financial instruments in this or in any other jurisdiction in which such solicitation or offer would be unlawful under the securities laws of such jurisdiction. The opinions expressed in this publication are those of the author. They do not purport to reflect the opinions or views of any of the author’s employers.

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