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Ethereum Founder Says Central Banks are Incapable of Creating Own Cryptocurrency

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Cryptocurrency art

Central banks have expressed keen interest in creating their own cryptocurrencies, probably in realization that blockchain-powered assets are more than just a fad. It’s too bad they lack the paradigm to do so, says Ethereum founder Vitalik Buterin.

Vitalik Doesn’t Think They Can Do It

A central bank-backed cryptocurrency would simply amount to “a server and a bunch of marketing buzzwords to make it look like a blockchain,” says Buterin, according to Jeff John Roberts’ latest Fortune report.

The 23-year-old Buterin said it would take years for central banks to mint their own coins, suggesting that existing blockchains needn’t be worried about competition from government.

Indeed, central bankers have spent the past few years mulling over the impact of cryptocurrencies on traditional payment methods. It’ll be another few years before they develop a system comparable to bitcoin or Ethereum, if at all.

Russia could become the first case study in government-backed cryptocurrency. Reports from TASS suggest that central regulators are embarking on a ‘CryptoRuble’, or a digital currency system backed by fiat money.

Buterin is a native of Russia, but currently resides (at least partially) outside Toronto. That may explain his recent visit to the three-day Swell conference in the city. The event was hosted by Ripple, the world’s third-largest digital asset by market cap.

Can Governments Contain Cryptocurrency?

Buterin has raised awareness of the irony in proclaiming a centrally-controlled cryptocurrency. By definition, a cryptocurrency cannot be contained within a single jurisdiction, since mining can carried out by anyone, anywhere. This is perhaps what’s making central bankers so nervous. Although Russia’s CryptoRuble aims to centralize the mining of cryptocurrency, it’s unclear how such a system would be administered.

The inherent tension between central banks and cryptocurrencies will likely grow over time as more people use digital tokens as payment. With the exception of bitcoin, cryptocurrency has yet to take off as a payment method. Japan could very well be the first case study in how quickly bitcoin will be adopted to pay for goods and services. The world’s third-largest economy has already recognized cryptocurrency as a legal payment method, leading to speculation that hundreds of thousands of domestic merchants will start accepting payments within the first year.

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 614 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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Long-Term Cryptocurrency Analysis: Bearish Trend Intact Despite Explosive Rally Attempts

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The negative trend in the cryptocurrency segment continues to be dominant, with almost all of the top coins trading below the structural support levels that were broken during the summer months. Bitcoin is still above the $5850 level, the last base support before last winter’s explosive speculative event, but Ethereum, Ripple, Litecoin, and the other main altcoins all continued relentlessly lower.

Most of the majors formed a bottom in August, even though Ethereum continued to lead the way lower amid the bleak sentiment and capital flight. Several oversold rally attempts already failed in the segment, leaving the long-term declining trends intact, with last week Ripple providing hope for bulls with its explosive move higher.

While some of the coins tried to follow Ripple higher, the development of a healthy leadership failed yet again, add our trend model continues to be overwhelmingly bearish from a long-term perspective. With that in mind, the short-term buy signals should still be treated cautiously by traders. The August lows are not in direct danger right now, and a more durable bottom might already be in, but a broader rally would be needed to confirm a trend change.

BTC/USD, Daily Chart Analysis

While BTC has been holding on relatively well during the summer months, in the past weeks, as the largest coin was hurt by selling related to large wallets. The coin failed to show bullish momentum despite its stability, and a break below the key long-term support zone near $5850 is still possible here.

Primary support is at $6275, and in the case of a breakdown below $5850, the next major support zone is found near $5000, while resistance is ahead at $7000, between $7200 and $7300, and in the $7650-$7800.

ETH/USD, Daily Chart Analysis

After spiking below $180 and forming a panic-bottom, Ethereum rallied up to $260, but due to the extent of the preceding decline, it didn’t reach the declining trendlines which dominated the market for several months. The coin has been leading the selloff in the segment, and now a re-test of the lows is once again likely, even if a more durable bottom is already in.

Short-term support is found at $200 and $180, while below the recent low, further zones are found near $160 and $130, with resistance zones ahead between $275 and$280, near $300, and in the $330-$335 zone.

(more…)

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 353 rated postsTrader and financial analyst, with 10 years of experience in the field. An expert in technical analysis and risk management, but also an avid practitioner of value investment and passive strategies, with a passion towards anything that is connected to the market.




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Cryptocurrencies

Exploring the Korean Bitcoin “Kimchi Premium”

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Korean Kimchi Premium

If you have been trading Bitcoin for over a year, you will no doubt have heard of a weird market phenomenon called the “Kimchi premium”.

This is essentially the premium that Korean traders will pay over the international price of Bitcoin.

More specifically, it is the difference between the USD equivalent of the KRW price of Bitcoin vs. the USD price of Bitcoin on an international exchange.

This premium has varied anywhere from a few percent to over 20% in periods of severe market volatility. This opens up a whole host of questions around potential “arbitrage trades” between the markets.

So, can you take advantage of the Kimchi premium? Do other local market premiums exist?

In this post, we will give you everything you need to know about the Kimchi premium as well as the potential to trade it.

Kimchi Premium Example

Before we can take examine the implications of the Kimchi premium, it helps to take a look at a practical example of it in the markets today.

At the time of this post, the price of Bitcoin on an international exchange such as the Binance exchange is currently sitting at $6,618. However, if we take a look at the price of Bitcoin on a South Korean exchange such as Bithump, it is currently 7,540,000 KRW.

The current exchange rate between the Korean Won and the USD is about 1,100 KRW/USD. This means that the price of Bitcoin on an exchange like Bithump converted into USD is $6,854. This is about a 3.5% premium over the price of Bitcoin on Binance.

While this is far from the 20% premium that we have seen in the past, a 3.5% risk free profit would entice many traders who trade arbitrage. Yet, there are a number of factors that you need to take into account before you can consider attempting to arbitrage this market.

Triangular Kimchi Arbitrage

If a trader wanted to take advantage of this Kimchi premium, then they would have to buy Bitcoin in USD, send the coins to a South Korean exchange, sell them for Korean Won and then convert them into USD. Below is an example of the triangular arbitrage nature of the trade.

Triangular Arbitrage Example with Binance and Bithump

This is a simple example of how it will work. However, there are a few things that you should consider that could reduce the potential gains. These are fees, both on the exchange side as well as the fiat banking side. There is also the added scrutiny that comes from fiat currency exchange controls.

In terms of fees, there is likely to be a Bitcoin network fee as well as a withdrawal fee from Bithump. Then, when you try to send the funds abroad, you are likely to encounter more fees on the purchase of USD (rate above is spot) as well as international wiring fees.

When all of these fees are added up, it is likely that the Kimchi premium will be greatly reduced.

Another really important consideration is the requirements in order to obtain an exchange account and bank account in South Korea. There is no doubt that they will want to see proof of residency for the applicant.

So, unless you happen to have access to both a South Korean trading and Bank account, then you may find it difficult to ever place an arbitrage trade on the Kimchi premium.

However, I have observed similar market premiums on a number of other local currency exchanges in the past. I have seen premiums between the USD and the EUR, AUD, CAD, JPY and ZAR prices on these exchanges.

All that is required is you to observe the USD equivalent of the different currency prices for Bitcoin on Coinmarketcap. Interestingly enough, the South Korean exchanges have actually been removed from these calculations given the pricing distortion they had on prices in the past.

In order for you to make the most of these local market premiums, you have to understand why they are present.

Why Do they Exist?

Arbitrage opportunities exist in the Bitcoin markets because of the varying degrees of local supply / demand vs the demand on international markets. There could be specific reasons that an individual country has such high demand for Bitcoin

In the case of Kimchi premium, it is well known that South Korean users are much more bullish than their counterparts in other countries. This excessive demand will drive up the price of Bitcoin in Korean Won.

Taking a look at a more extreme example, you have the case of Zimbabwe.

Prices for Bitcoin in Zimbabwe have exceeded the international price by over 60% in the past. Bitcoin is so highly prized in Zimbabwe because of the hyper inflation that is currently gripping the country. The same can be said for other countries such as Venezuela or Argentina currently.

A 100 Trillian Bank Note in Zimbabwe. Source: citeco.fr

These premiums also exist because they are hard to take advantage of. For example, it would be very hard to use any traditional banking in countries such as Zimbabwe or Venezuela to take advantage of the premium. Who would trust their fiat money in a country where the inflation rate tops 100,000%?

There are also a number of countries that have exchange control limits on their citizens. On the individual level, these are likely to be quite low which means that eventually you will be stopped from converting your local currency for USD.

In the more secure western countries, the premium may still exist merely because there is not enough money pursuing the trade. This is the more favourable position to be in and it means that you as an individual have a slight advantage over larger hedge funds and institutional money managers.

These established markets with developed banking infrastructure are the most likely place for you to try and take advantage of these opportunities.

Conclusion

While markets have fallen considerably over the past few months, so has the Kimchi premium. This is probably as a result of South Korean trader’s lack of appetite for Bitcoin currently.

However, this is likely to turn the moment that the next Bitcoin bull market rolls in. South Korean traders will feel a great sense of FOMO and the local demand for Bitcoin is likely to increase.

As the Bitcoin markets are still relatively unexplored by large financial institutions, pricing inefficiencies are likely to remain along with the Kimchi premium.

Featured Image via Fotolia

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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5 stars on average, based on 3 rated postsNic is an ex Investment Banker and current crypto enthusiast. When he is not sitting behind six screens trading Bitcoin, he is maintaining his numerous mining rigs.




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Why Investors Should Pay Attention to Chainlink

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The blockchain industry is still very much in its early stages, and is seen as “the disruptor” to banks and many other industries. But that doesn’t mean there can’t be disruptors within the industry. Companies that pop up and begin to threaten incumbents in a certain space.

The last few days have shown that exact event occurring with a relative unknown called Chainlink. A few positive announcements have catapulted them up onto the map within the oracle space, and it is unclear where this will take them in the future.

What is a Blockchain Oracle?

Smart contracts are incredibly effective and novel ways of handling automation and decision-making, but they currently live inside the “walled garden” of their own ecosystem. We have discussed companies that connect different blockchains, as well as companies that use blockchain to connect real world assets, but there is also a need to connect data external to the blockchain.

The term oracle comes from Ancient Greek mythology where people didn’t have enough information to make decisions and would go to oracles for additional inputs. This is exactly what “oracles” aim to do. Connecting Dapps and APIs is just the beginning of the power of oracles.

Bitcoin and Ethereum operate in a form of isolation, with no connection to information outside of their respective chains. This makes validating conditions of smart contracts very difficult. Ideally, an oracle would be able to translate outside information into terms that Dapps could understand, thus triggering (or not triggering) the smart contract.

The idea is that much like Coinbase acts as a gateway for a large amount of the funds going into the blockchain ecosystem, one company would likely be able to become the gateway for much of the information flowing into the ecosystem.

Chainlink as a Competitor

Ever since people realized there was massive potential for whoever could figure out how to bring information like price changes, payments, or even something as innocent as temperature into the blockchain, more companies have been working on solving this problem. Oraclize has long been seen as the frontrunner within the industry, with other behemoths like IBM and Microsoft throwing their hats in the ring as well.

Chainlink was late to the game, but has made significant progress in the time they’ve been going after market share. With high profile partnerships including SWIFT payments, IC3, and Gartner, they are hardly an unknown anymore.

Their coin, LINK, is what is used to pay for an Oracle (or a node) to provide data. The services offered include certification, validation, and reputation services, all with the goals o f enforcing the overall integrity of the networks’ Oracles. Historically, Chainlink has been weak on the connection from and aims to let their technology do the talking. Right now, their mainnet is not yet live, and it still isn’t’t clear when it will be released. For this reason, the only way to really judge how they are doing is based on their partnerships and their listings.

Chainlink’s Recent Performance

In the last few weeks, we have seen Chainlink climb up the rankings to enter the top 20 ERC-20 tokens in terms of market capitalization. Up a wild 23.8% in just the last week, this is due to a combination of a few pieces of news. First, Bithumb announced that LINK would be listed on their exchange. Then, Chainlink announced a partnership with Gamedex where they would translate professional sports match results into the Dapp.

These few pieces of information alone don’t mean much, but there is often a momentum play that can be made as a company comes out of obscurity. Being in the top 20 of market capitalizations is a good tell.

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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