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The NSC Labels Blockchain a National Security Issue

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On the weekly recap, NLW looks at growth in institutional investment, big interest among the G20 in CBDCs and a new National Security Council report.

On this edition of The Breakdown weekly recap, NLW looks at:

  • Growth in the institutional investment space in crypto
  • A new 10,000 BTC treasury announcement 
  • Reports from the Bank for International Settlements, G20, WEF, IMF and more around central bank digital currencies
  • A National Security Council report labeling distributed ledger technology key for national security

This week on The Breakdown:



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Blockchain Bites: PayPal’s Play, Mode’s Bitcoin Buy, CoinDesk’s Most Influential Needs Your Vote

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PayPal merchants will soon accept crypto payments as part of a major push into the “virtual currency marketplace.” The Bahamian central bank unveiled the world’s first CBDC. Kik and the SEC are nearing an end to a yearlong court battle over its $100 million initial coin offering (ICO). Here’s everything people are talking about in crypto today.

Top shelf

PayPal’s play
PayPal will be offering trading and transaction of bitcoin, bitcoin cash, ether and litecoin in the next few weeks to its 346 million customers and 26 million merchants through a partnership with Paxos Trust Company, although for some users, the features are already available. The New York State Department of Financial Services (DFS) has granted the first “conditional BitLicense” to PayPal, a regulatory arrangement where interested companies can operate in the state’s “virtual currency marketplace” by working with already chartered firms. “DFS will continue to encourage and support financial service providers to operate, grow, remain and expand in New York and work with innovators to enable them to germinate and test their ideas,” the watchdog said. Many in the industry see this as a year-defining event that could rapidly expand crypto’s pool of potential users. Others take umbrage that the payments firm will not initially allow users to transfer crypto outside of the PayPal network. “You own the cryptocurrency you buy on PayPal but will not be provided with a private key,” the company wrote in a help post.

Another allocation
Mode Global Holdings, a London Stock Exchange-listed company, has announced plans to make a “significant purchase” of bitcoin as part of its treasury investment strategy. The fintech group said it will convert up to 10% of its cash reserves into the cryptocurrency as part of a long-term strategy to “protect investors’ assets from currency debasement.” “Faced with the challenges of COVID-19 and with U.K. interest rates at the lowest level in the Bank of England’s 326-year history, our confidence in the long-term value of bitcoin has only increased,” said Jonathan Rowland, Mode’s executive chairman.

It’s official
The Central Bank of the Bahamas has officially launched its national digital currency, the sand dollar, an attempt to reduce the friction of bringing financial services to its dispersed, and often underbanked, population. This marks the first official deployment of a central bank digital currency (CBDC), which will be rolled out initially to private-sector banks and credit unions. Personal wallets are secured with multi-factor authentication security and will be mobile-based, servicing the 90% of the population with smartphones. The sand dollar is backed 1:1 to the Bahamian dollar (BSD), which, in turn, is pegged to the U.S. dollar.

Future bulls?
Bitcoin futures traders are significantly less bullish as bitcoin traded past $12,000 Tuesday compared to when bitcoin reached the same level nearly two months ago. When bitcoin traded near $12,000 throughout August, finally reaching the key level mid-month, funding rates for perpetual futures turned acutely positive across leading derivative exchanges, reflecting the market’s bullishness. As bitcoin revisited $12,000 Tuesday, however, funding rates reacted differently, staying flat or turning negative, indicating a lack of the same bullishness two months ago.

Decentralization metric
A New York law firm unveiled a new metric to test the decentralization of particular blockchain projects. Called the “Ketsal Open Standards” rubric, the toolkit, developed by the Ketsal law firm, outlines 33 data points – including node count, GitHub statistics and measurements of the inter-node communication times – to weigh the distribution of a network. The lawyers looked to Bitcoin as the benchmark. “It’s a tool to push along an informed discussion on what you’re talking about when you’re saying, ‘my network is decentralized,’” Ketsal partner Josh Garcia said.

Most Influential 2020: Cast Your Vote
2020 has not been a good year by most metrics. There is no way to avoid this in a year-end retrospective.

Every year, CoinDesk recognizes the “Most Influential” people working to expand cryptocurrency and blockchain’s reach. It’s a list of the 10 outsized individuals who have gone the furthest and done the most.

In this most unusual year, we need your help determining who should be named as Most Influential. Check out the list of the top contenders and cast your vote by Oct. 31.

Quick bites

At stake

Kicking the can?
Kik’s yearlong battle with the U.S. Securities and Exchange Commission (SEC) appears to have reached an end, with the sparring parties proposing a settlement.

A proposed fine of $5 million, 5% of the $100 million raised in the 2017 token sale that sparked the battle, is regarded as being relatively light, all things considered. 

Tim Swanson, head of market intelligence at clearmatics, noted the penalty – if approved – would be in line with another high-profile lawsuit and settlement from last year: Block.one’s $24 million paid for a $4.1 billion unregistered securities offering.

More pattern pieces were placed earlier this year when Telegram paid a fine and abandoned its blockchain-based network. Kik, however, plans to keep its Kin network alive, with promises to alert the watchdog of any future token sales. 

For many, including CoinDesk, Kik’s persistence in fighting the SEC was a laudable effort. In 2019, Ted Livingston, Kik CEO, was named Most Influential for his determination to bring the fight to court, potentially creating a precedent for how token sales might be treated under U.S. securities law. 

Pressure mounted in recent months, especially after a judge found Kik’s ICO in clear violation of the Howey Test, the gold standard to determine whether an asset is a security. 

Kik General Counsel Eileen Lyon said the SEC should create clear rules for the crypto industry, rather than publish “conflicting statements” and other non-binding forms of guidance in September. It’s a statement we’ve heard before. 

Who won #CryptoTwitter?

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PayPal Adds Bitcoin: Most Bullish News of the Year?

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PayPal will offer its U.S. customers the option of buying and selling crypto, with support for payments to its 26 million-strong merchant network coming next year.

In this late-breaking Breakdown episode, NLW explores:

  • The specifics of the news
  • Why the scale, precedent and normalization are hugely bullish
  • What some skeptics are saying
  • Why it’s significant PayPal is focused on the coming central bank digital currency era



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Ethereum Classic’s MESS Solution Won’t Provide ‘Robust’ Security Against 51% Attacks: Report

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A solution being implemented to safeguard against so-called 51% attacks on the Ethereum Classic (ETC) network may not be as secure as other alternatives, according to a new analysis.

This summer, the ETC blockchain suffered three such attacks in a month. Soon after, ETC Labs – leading organization supporting the network – announced it would roll out the Modified Exponential Subjective Scoring (MESS) solution as an “innovative and low-risk” means to mitigate the risk of future 51% attacks.

But, according to a report from the ETC Cooperative and Cardano developer IOHK on Tuesday, an analysis concluded that “the ‘MESS’ solution will not provide “robust security” and there’s “no guarantee that further attacks will not succeed.”

Further, MESS doesn’t provide “high confidence for stakeholders to reduce confirmation times to desirable levels,” the report reads.

A 51% attack occurs when a nefarious actor gains the majority of a network’s computing power, allowing them to carry out a reorganization (“reorg”) of blocks on the chain and potentially double-spend transactions.

MESS is designed to make large block reorgs up to 31 times more costly, in theory negating any profit motive behind 51% attacks.

The firms looked at various solutions proposed by developer teams from across the ETC community for the analysis, and said checkpointing and timestamping solutions would provide superior security.

According to the report, timestamping enables ETC to base its security off another secure blockchain such as Bitcoin.

Meanwhile, checkpointing occurs when a “trusted authority” chooses a block to become the canonical chain all participants must follow, and cannot be later “dropped or reverted.”

ETC Co-op Executive Director Bob Summerwill said he hoped the report was the “first step” toward centralized decision making among ETC’s leadership, “allowing technical and other ecosystem proposals to be essentially peer-reviewed, improving them, and ensuring they are sound.”

The report also suggested the implementation of a “decentralized treasury,” providing an ongoing source of funding for the future development of the ETC platform.

“A democratic and transparent funding mechanism will also allow the ETC community to determine its future direction by allowing it to choose which innovations are incorporated into the ETC product offering,” it reads.

This, the report claimed, would ultimately allow ETC to “keep pace with and exceed the capabilities of other platforms.”



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