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Blockchain is the “Fourth Industrial Revolution” and Wall Street Is Already Invested, According to Fund Manager

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Wall Street’s biggest banks have already pivoted toward cryptocurrency and blockchain technology, according to Steve Chiavarone, a portfolio manager with U.S.-based Federated Investors. In his view, it’s only a matter of time before blockchain begins to replace many important facets of enterprise finance, including reconciliation and supply chain management.

The Fourth Industrial Revolution

In an interview with CNBC, Chiavarone predicted that blockchain technology will help “drive the next industrial revolution,” a phrase that describes the next phase of technological innovation.

When assessed purely from an enterprise perspective, blockchain “has the ability to replace reconciliation, which is expensive and requires back office, time, and paperwork, with more instantaneous verification,” Chiavarone said. This not only frees up resources to create more efficient supply chains, it can lower enterprise costs so that savings can be passed along.

Federated Investors, which manages $364 billion in client funds, has identified blockchain along with four other emerging technologies as being the next great disruptors of our time. The other technologies include automation, robotics, artificial intelligence and the Internet of Things (IOT).

Chiavarone indicated that several major banks have already begun investing in blockchain and cryptocurrency, chief among them being Goldman Sachs. Though the bank has only recently confirmed its entry into cryptocurrency as a market maker, Goldman has been involved in the industry for several years through Circle Internet Financial. Earlier this year, the Goldman-based Circle acquired cryptocurrency exchange Poloniex in a deal that was reportedly worth $400 million.

Understanding Disruption

In a 2016 publication, the World Economic Forum described the fourth industrial revolution as having three essential characteristics: velocity, scope and systems impact. In other words, the speed of current innovations is unlike anything we’ve seen before, the scope is much broader and the breadth of change can transform “entire systems of production, management and governance.”

Although WEF did not specify blockchain in its analysis, distributed ledger technologies are being adopted by a wider audience to achieve similar goals. As the ICO boom has clearly demonstrated, blockchain applications extend far beyond finance to just about every sector imaginable.

At a practical level, distributed ledger technologies reduce and in some cases eliminate the need for broker activity, thereby disrupting sectors tied to insurance, real estate and paralegal services. For banks, blockchain is also being used to reduce or eliminate enterprise operations tied to auditing, reconciliation and manual labor.

As an interoperable and immutable ledger, blockchain is becoming one of the most trusted ways to store and verify sensitive information.

Blockchain still has a long way to go to achieve the type of mass adoption Chiavarone is talking about but it is already clear that the technology’s fate extends far beyond the performance of cryptocurrencies.

Disclaimer: The author owns bitcoin, Ethereum and other cryptocurrencies. He holds investment positions in the coins, but does not engage in short-term or day-trading.

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 547 rated postsSam Bourgi is Chief Editor to Hacked.com, where he specializes in cryptocurrency, economics and the broader financial markets. Sam has nearly eight years of progressive experience as an analyst, writer and financial market commentator where he has contributed to the world's foremost newscasts.




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Coinbase Chief Brian Armstrong on Bitcoin Bubbles and Corrections

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It’s not often that you have two blockchain pioneers like Coinbase CEO Brian Armstrong and Ethereum Co-Founder Joseph Lubin address the market in the same week. But in recent days, the stars aligned, with Armstrong and Lubin both meeting with Bloomberg for separate interviews.

While each of them has their own take on the state of the market, they appear to agree on overarching themes that have gripped cryptocurrency investors of late surrounding digital currency prices and the bubble theory.

Coinbase’s Armstrong didn’t shy away from questions on bitcoin’s price, which has taken investors on a roller coaster ride since its December 2017 peak of more than $19,000 and recent dip below $6,000. Today, a corrective rally is in place in which the bitcoin price is up more than 6% on CoinMarketCap to $6,455. Armstrong suggested that it’s part of the evolution of the emerging technology.

“This technology is going through a series of bubbles and corrections. We’ve actually been through about four or five of them now where bitcoin made this big run-up in price and there was … irrational exuberance and it corrected back 60-70%. and each time it does that it’s at a new plateau,” said Armstrong.

Joseph Lubin, who in addition to co-founding Ethereum is at the helm of ConsenSys, seems to agree, adding in a discussion with Bloomberg that “each of these bubbles has the advantage to bring attention to our ecosystem.”

Coinbase and Crypto

Coinbase, which launched about six years ago, holds anywhere between $10 billion and $20 billion of clients’ cryptocurrency assets on a given day. In 2017, Coinbase transacted approximately $150 billion in cryptocurrency volume. Armstrong likened the bitcoin bubbles to the growth of Coinbase, which is the most popular U.S.-based cryptocurrency exchange.

For instance, as the bitcoin price has traversed this series of bubbles and corrections, Coinbase’s growth has performed in a similar trajectory, with the number of daily new users rising on the heels of major market corrections.

Armstrong is in the camp of comparing cryptocurrencies to the internet of 2001, pointing to “a lot of good companies that got started in the trough as well,” such as Facebook, for instance. While the expectations for the cryptocurrency prices may be “all over the map,” he said that “the real world adoption and usage is pretty steadily increasing.”

While adoption and usage may be on the rise, don’t expect to walk into your local Starbucks and pay with bitcoin any time soon, at least not in the U.S. The reason, Armstrong suggests, is that payments aren’t a major “pain point” in the U.S. unlike some developing economies. As much as 90% of cryptocurrency usage surrounds investments, leaving a mere 10% for “real world usage.”

Armstrong, who more than once likened Coinbase to the New York Stock Exchange, also addressed topics like regulation and ICOs, saying of the latter that the exchange “is not trying to list everything under the sun.”

Featured image courtesy of Shutterstock.

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 36 rated postsGerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.




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ETFs

Winklevoss Twins Shift Crypto Focus to Retail Investors, not Resentment

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If anyone in the world has good reason to feel resentment toward Wall Street regulators for rejecting their bitcoin ETF application, it’s Cameron and Tyler Winklevoss of the Gemini cryptocurrency exchange. Their bitcoin ETF product was rejected by the U.S. SEC not once, but twice, the most recent decision of which was responsible for igniting the crypto market meltdown that was exacerbated by the VanEck bitcoin ETF delay.

Instead of harboring feelings of resentment, however, the brothers only seem to be empowered by the development, as evidenced by their decision to focus on the one client group in which they can depend — retail investors, according to a Bloomberg report. If investors could adopt a similar big-picture perspective, perhaps we wouldn’t be in the current situation in which more than $20 billion has been shaved off the total value of the cryptocurrency market over 24 hours.

In fact, for Cameron and Tyler Winklevoss, it’s not only business as usual but it’s more business than usual by the retail segment.

“Wall Street is taking cryptocurrencies seriously, however, the vast majority of Wall Street firms are still not participating in the cryptocurrency market, which remains primarily a retail-driven market. This will change over time, but it will take time,” Tyler Winklevoss told Bloomberg.

Winklevoss isn’t the only one to feel this way. Adam White, vice president and general manager at Coinbase, a rival exchange to Gemini, recently told CNBC: “What’s so unique about cryptocurrencies, and in many ways this asset class, [is that it] was driven by retail investors — not institutions,” characterizing the interest among institutional investors as “profound.”

OTC Market

Meanwhile, a report by Tabb Group earlier this summer revealed that trading volume in bitcoin’s over-the-counter (OTC) market exceeded that of exchanges as much as threefold, which would attach a value of $12 billion in OTC bitcoin trades every day. Here’s the tweet by crypto industry engineer Eric Wall –

A report on Yahoo Finance concluded that the dramatic selling in the cryptocurrency markets on the heels of the Winklevoss bitcoin ETF rejection could have been the result of bitcoin whales selling not on exchanges like Gemini, where the adjusted trading volume over the last 24 hours hovers at $69 million, but instead the OTC market. This inserts a bit more uncertainty into the drivers of cryptocurrency prices.

Nonetheless, it appears clear that the market is placing a great deal of emphasis on a bitcoin ETF, or lack thereof currently. Such a product could open up the asset allocation of large pension funds, for instance, to crypto.

And as for the Winklevoss twins, they already have a “first” in this market. They were behind the maiden Bitcoin Futures Contract (XBT) on the CBOE last December. And if the CBOE has its way, it will be part of the inaugural bitcoin ETF, as well.

Featured image courtesy of Shutterstock

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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4.6 stars on average, based on 36 rated postsGerelyn has been covering ICOs and the cryptocurrency market since mid-2017. She's also reported on fintech more broadly in addition to asset management, having previously specialized in institutional investing. She owns some BTC and ETH.




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Cobinhood Founders Raises $20 Million for New Blockchain That Can Process 1 Million Transactions/s

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The founders of Cobinhood, (the zero-fee cryptocurrency exchange that riffed on popular stock trading app Robinhood for its name and branding), have successfully raised $20,000,000 from venture capitalist firm IDG and angel investors to launch the Dexon Blockchain.

Dexon is offered as an ultimate solution to the scalability issues plaguing many larger and more recognized blockchains, such as Bitcoin & Ethereum.
The founders claim that this is achieved through the use of a Blocklattice, as opposed to a blockchain.

According to the Dexon whitepaper, “On the Dexon network, blocks are grown by all nodes individually in parallel to each other and in a non-blocking fashion, creating a blocklattice structure.

No node has to wait for any other node as it extends its own blockchain, enabling unprecedented scalability. In order to achieve consensus in a blocklattice, there must be a mechanism to identify the validity and order in which all of these blocks are being produced.

This is accomplished by having each node broadcast the existence of the new blocks to all other nodes on the network once they have been produced. As other blocks receive the broadcast, they can perform an “​ack” or “acknowledgment​” that serves as a validation and timestamping for the creation of the new block.”

In Dexon, the consensus of the network is achieved by taking the median time that all nodes recognized a given block solved by a single node. By fragmenting this validation, the founders of Dexon posit that it is basically impossible to game the system.

After all, you would basically have to fool each node in the network into thinking they recognized a block from another node at a different time than they actually did.

But is this really the silver bullet to every blockchain’s woes?

Unlikely.

Vitalik Buterin originally coined the phrase, “The Scalability Trilemma.”

In this Trilemma, Buterin posited that blockchains can only have two of the following three properties:

1. Decentralization (defined as a system where each user accesses network resources more or less equally)

2. Scalability (defined as being able to process X number of transactions in a given amount of time for insignificant fees)

3. Security (defined as ensuring security against network attackers due to the inherent amount of computing resources needed to attack successfully)

After conducting deep research on the project, this analyst remains unconvinced that Dexon has solved this trilemma. That said, it remains a promising project worthy of attention.

To provide some context on the project, Dexon is laser-focused on blockchain mass adoption within the banking industry and for real-world application requirements. They believe that blocklattices will work together to form an infinitely scalable, low-latency, and decentralized transaction processing engine.

The Dexon team also timed the announcement of securing funding with the release of results from the network’s first transaction speed test, which clocked in at 50 blocks per second. This figure is estimated one million transactions per second.

To put that number into perspective, Bitcoin has a transaction time of 1-6 hours, while Ethereum takes 1-5 minutes.

According to Dexon cofounder and Cobinhood founder Popo Chen, “Clearly, investors believe in Dexons’ ‘blocklattice’ protocol, which is underpinned by consensus algorithms that allow for transaction speeds competitive with major credit card companies.

In fact, we hope to partner with these institutions, as we’re now able to offer the same processing power without a need for centralization. Other than Dexon, current blockchain protocols can only process a few secure transactions per second, leaving them unable to keep pace with traditional solutions.”

Another critical feature of Dexon is its native interoperability protocol so that other blockchains can easily interface with it. In its white paper, the Dexon team is highly critical of other interoperability solutions, such as Polkadot.

They describe the flaws in Polkadot’s model as, “The way Polkadot bridges transactions is by a c​ollator, which is nominated by n​ominators. A nominator’s voting right to elect a collator is bonded to Polkadot’s native token, making the collators among different blockchain systems stake-coupled. We argue that the stake-coupled model will not work in the practical world.

Taking one case as an example, if Polkadot’s market cap is 1B USD and the bridged total amount of Bitcoin amounts to 10B, then theoretically, any malicious party’s best strategy is to purchase enough Polkadot tokens to break the Bitcoin collator system and steal all funds stored in the collator-managed multi-signature Bitcoin wallet.

In reality, the value of bridged assets tends to exceed the bridging network’s total assets value, thus we conclude that for a practically feasible blockchain bridging protocol to work, the bridging protocol collator must be stake-decoupled from the bridging network’s token value.”

Dexon’s interoperability approach meanwhile uses a so-called PoA (or proof-of-authority) model.

According to the Dexon whitepaper, “the goal of the PoA model is to achieve stake-decoupled and fully decentralized bridging operations. To this end, there is a special type of contract called inter-chain bridging contract,​ which can be used to bridge transactions between different blockchain systems.

The inter-chain bridging contract is operated by an inter-chain ​bridging committee ​which acts as an ​authority​ to ​two-way peg the transactions in other blockchain systems. We call the members of the bridging committee bridging operators​.”

It’s important to note that the whitepaper gave no explanation of how these bridging operators are elected. This could be an important point of contention to watch if their blockchain truly will be the interoperability tool of choice. This is also the focus of this analyst’s contention that Dexon has not solved the “scalability trilemma.”

That said, the project is intriguing, and the focus on mainstream adoption is sorely needed in an ecosystem in which scalability is treated as a long-term problem to solve instead of a necessary roadblock to everyday use.

According to another Dexon co-founder Wei-Ning Huang, “With its fundamentally new architecture, the DEXON network is poised to become the world’s first mainstream blockchain.

Investors are recognizing that there is a problem with current blockchain technology and that the protocol most focused on throughput and scalability will form the basis of Blockchain 4.0. These tests prove that the blocklattice works and this funding are proof that investors trust Dexon’s strategy over the long term.”

Whether this network can truly scale efficiently remains to be seen. Although these early speed tests are promising, only the existence of large numbers of nodes will definitively prove if the network efficiency is sustainable.

The fact that the founders of Cobinhood are behind the project could also be a positive thing or a liability depending on your perspective. Cobinhood after all pretty shamelessly ripped off Robinhood’s name and branding in launching their crypto exchange.

This resulted in Robinhood sending them a cease and desist letter and releasing a public statement stating, “Robinhood has no affiliation with Cobinhood, which is confusingly similar in name and branding. In order to protect our brand, Robinhood sent a cease and desist letter requesting that Cobinhood cease its use of the Cobinhood name and branding.”

Cobinhood responded publically by issuing a statement saying “Cobinhood is not associated with Robinhood in any way, but are as legitimate as them.” Now, this claim is essentially laughable.

Although it is not necessarily fair to judge the technology of the project by the co-founders, it is important if only to remember that it will be a project strongly influenced by founders who have no issue ripping off other projects and lying to gain user adoption.

Although Cobinhood has since become a fairly useful exchange to use for the limited number of coins they support, it’s still not necessarily the cryptocurrency equivalent of a gold star to have their endorsement on a given project.

In conclusion, Dexos appears promising. If the networks’ speed test figures can maintain themselves as more nodes are added, they could be a real contender for a mass adopted blockchain. If.

Featured image courtesy of Shutterstock. 

Important: Never invest (trade with) money you can't afford to comfortably lose. Always do your own research and due diligence before placing a trade. Read our Terms & Conditions here. Trade recommendations and analysis are written by our analysts which might have different opinions. Read my 6 Golden Steps to Financial Freedom here. Best regards, Jonas Borchgrevink.

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