El Salvador to adopt Bitcoin and FBI cracks ransomware case
Off The Blocks, Vol 128, Wednesday, June 9, 2021
My work focuses on creating ecosystems for decentralized tech adoption. At Proteum, we connect the dots on things that matter in an increasingly interconnected world with a focus on interconnected devices, fintech applications and emerging fan experiences for sports and entertainment.
It has been a few months since my last newsletter. At Proteum, we have been breaking new ground, with a special emphasis on the sports and entertainment markets and that has taken a lot of my time. Yes, DeFi and NFTs are playing a big role in the expansion of the digital asset economy and we are laying the foundation for a strong ecosystem. The pace of innovation in the crypto markets is extremely rapid and it has surely kept us on our toes. Nevertheless, returning back to writing is a good way to share my findings with the readers in this space.
The last 6 months have been a rollercoaster for the trading markets and the period feels like a lifetime. Price volatility is not a new phenomena with Bitcoin. Along with improving adoption and fundamentals for Bitcoin, there is also a huge amount of fear, uncertainty and doubt, FUD, as it is colloquially referred to. Added to this mix has been a lot of uninformed commentary and gaslighting of the FUD by billionaires, who have the power to move markets for their own personal gains, whatever they may be or however they may be realized.
Despite all of that, Bitcoin is ranked as the 9th largest asset worldwide, ahead of any other financial service. It is digital. It is decentralized. It is now being embraced by sovereign nations.
This is a big shift in mindset. For economies like El Salvador (and perhaps others), Bitcoin’s attractiveness stems from a predictable monetary policy that can help prop up its own local economy. The local currency is currently pegged to the USD, and accepting Bitcoin as a legal tender can help it unshackle itself from unwarranted geo-political forces or domestic US policy. It may be a prudent move. To be clear, these are uncharted waters, and you should expect the experiment to blow up. However, in case it succeeds, the financial world will be unrecognizable from what it has been in the past.
In the crypto universe itself, fragmentation is starting to show up. Newer protocols such as Polygon and Solana while aiming to play friendly with the ETH ecosystem, are also starting to carve a market for themselves with high transaction rates and low cost as compared to Ethereum. On the DeFi side, Uniswap, a popular decentralized exchange, has become a $6B juggernaut in a span of less than a year. Not to be left behind, Binance launched Binance Smart Chain (BSC) last year in an effort to bring Ethereum smart contract functionality into is decentralized exchange ecosystem. The effort has paid off well BSC is a sought after chain amongst developers who see the benefits of aligning them with a large global brand.
In the DeFi space, the total value of assets locked in the system touched a high of over $80B in May 2021, before the FUD started to chip some of it away. This is a good metric for measuring the amount of capital that is securing the economic activity of crypto lending, borrowing and derivatives via applications governed by smart contracts. This segment of the market is dominated by Aave, a non-custodial liquidity protocol for earning interest on deposits and borrowing assets. Aave commands over 15% of the market share with over $12B locked.
Another craze that went parabolic but has since calmed down is Non-Fungible Tokens (NFTs), that allow for asset ownership that is recorded on the blockchain. The craze peaked with a $69M auction of an artwork by the famed auction house Christies. Ironically, the artwork behind that NFT is available for download freely. The very same smart contract that minted the asset also specifies in its metadata how to gain access to the art. The owner of the token seemingly got no IP rights to the asset. Most NFTs freely available on marketplaces today suffer from the same limitation. It begs the question about valuation of such assets - surely $69M is not justified, but with proper rights, certainly a reasonable value can be ascribed which can evolve over time - quite like artwork by the maestros.
In all of the conversations regarding DeFi and cryptocurrencies, it is important to understand the pivotal role played by stablecoins in this ecosystem. Stablecoins are synthetic assets deliberately designed to dampen price volatility by pegging them to fiat such as the USD, Euro or any other asset. As such a variety of DeFi instruments use stablecoins for collateral purposes. Crypto natives see this as an extension of the fintech stack that can provide services not accounted for by traditional banks and financial institutions. This is precisely where DeFi starts to intersect with traditional financial services and remains largely unregulated. It is no surprise then that the CFTC commissioner Dan Berkovitz fired the first shots, saying that a majority of DeFi derivative trade may be outright illegal.
DeFi markets, platforms, or websites are not registered as DCMs or SEFs [swap execution facilities]. The CEA does not contain any exception from registration for digital currencies, blockchains, or ‘smart contracts.
Coming right before what is termed as the Summer of DeFi, it will be an interesting battle between regulators and entrepreneurs to follow.
News From The World This Week
Jack Dorsey Says Square Is Considering Developing a Bitcoin Hardware Wallet: Twitter CEO Jack Dorsey tweeted Friday that his other company, the payments firm Square, is considering making a hardware wallet for bitcoin. He added that bitcoin is for everyone, and it's important for his team to build an inclusive product that brings a non-custodial solution to the global market.
If we do it, we would build it entirely in the open, from software to hardware design, and in collaboration with the community.
Amazon Looks to Hire Blockchain Staffers With Experience of DeFi: Amazon is searching for staff with experience in decentralized finance (DeFi), according to a job ad posted for Blockchain Head of Product. Amazon has been subject to speculation it was looking for staff to build a digital payment token, which appeared to be part of an emerging-payments initiative to be test-driven in Mexico. The blockchain product lead is part of Amazon Managed Blockchain, which recently added support for Ethereum. … Read More
Miami Coin and Voting With Your Tokens: In the shadow of El Salvador (likely) accepting bitcoin as legal tender, you may have missed that Miami is getting its own coin. Miami Coin, built on City Coins, which is built on Stacks, which is built adjacent to Bitcoin, is a new way for the city to potentially raise funds. And it appears to have Mayor Frances X. Suarez’s approval. The idea is pretty simple: You contribute crypto to a city’s wallet that the city could then receive as a kind of charitable donation. Whatever money you donate earns a yield. It’s the type of win-win scenario that crypto could enable but may have little chance of taking off. … Read More
Hong Kong Includes CBDC in Fintech Strategy: The Hong Kong Monetary Authority (HKMA) has published its “Fintech 2025” strategy with central bank digital currencies (CBDC), both retail and wholesale, included in the digital finance innovation package.Unveiling the fintech strategy via a release issued on Tuesday, CBDCs will reportedly play a part in the city administration’s goal of promoting comprehensive digital finance adoption by 2025. Concerning its plans for central bank digital currencies, the HKMA revealed that it would increase its research efforts to ensure Hong Kong’s readiness to float both retail and wholesale CBDCs. … Read More
China plans to accelerate blockchain development: China’s government is doubling down on its embrace of distributed databases with the establishment of an “advanced blockchain industrial system”, as the country looks to incorporate the technology into its economic and development plans. The country plans to establish industrial standards, tax incentives and intellectual property protections to support the blockchain industry, for which it wants to become a world leader by 2025, according to a document released on Monday by the Ministry of Industry and Information Technology (MIIT) and Cyberspace Administration of China (CAC), the two agencies in charge of the world’s largest internet industry. The document also mentioned plans to enhance global cooperation under the Belt and Road Initiative (BRI). … Read More
The FBI’s breach of a bitcoin wallet held by the cyber criminals who attacked Colonial Pipeline is all about sloppy storage, and not a reflection of a security vulnerability in the digital currency, crypto experts told CNBC. On Monday, the Justice Department reported a successful mission to retrieve $2.3 million in bitcoin paid by Colonial Pipeline to ransomware hackers in April. Court documents indicated that investigators traced bitcoin transaction records to a digital wallet, which they subsequently seized under court order. Officials were then able to access that wallet with something called a “private key,” or password.
It remains unclear how exactly the FBI retrieved the key. … Read More
I don’t want to give up our tradecraft in case we want to use this again for future endeavors. - Elvis Chan, an assistant special agent with the FBI’s San Francisco office
Proteum is a global blockchain advisory firm that works with public, private and start-up companies to help them transition into the world of blockchains and decentralized applications. We help companies strategically build their ecosystem and unique capabilities so that they can own and control their future. ProteumX, our accelerator program, invests in and accelerates the time to market for companies building blockchain solutions.