city skyline banks goldman sachs crypto trading

This week was dominated by rumors that Goldman Sachs has ditched plans for a crypto trading desk, sending crypto prices into a panic. But this is actually good news. Goldman Sachs is instead focusing on a safe, long-term crypto strategy rather than volatile trading.

Bitcoin traders threw themselves into a panic on Wednesday as the market collapsed beneath them.

Bitcoin fell 13% in a day. Altcoins fell as much as 20%. Ethereum hit its lowest price in 12 months.

While other factors were at play for the selloff, many blamed Goldman Sachs, which reportedly sidelined plans for a crypto trading desk.

The Long-Rumored Goldman Sachs Crypto Trading Desk

Goldman Sachs began eying up bitcoin in October 2017. Rumors of a trading desk emerged after they hired Justin Schmidt, a veteran crypto trader. An official from the bank said they were looking into bitcoin possibilities after receiving interest from clients.

This news was among the flurry of optimism that sent bitcoin to $20,000 last winter.

However, nothing was confirmed. In fact, Goldman Sachs distanced itself from crypto trading in January when CEO Lloyd Blankfein said day-to-day trading was not the bank’s priority for crypto. Instead, they would consider buying bitcoin futures contracts for some of its clients.

So Wednesday’s news shouldn’t come as too much of a surprise.

Clearing up the Rumors

To be clear, Goldman Sachs has not ruled out the possibility of a crypto trading desk. The bank’s CFO even called the recent rumors “fake news.”

“I never thought I would hear myself use this term but I really have to describe that news as fake news.” Martin Chavez, CFO.

The bank is not ditching its plans. A crypto trading desk has simply moved down the priority list while they look at better ways to work with bitcoin.

So What Exactly is Goldman Sachs Doing in Crypto?

Right now, the bank is helping its clients get into crypto by executing bitcoin futures contracts. Bitcoin futures are a way of betting on the future price movements. Goldman Sachs is using the bank’s money (“providing liquidity”) to do this.

At the same time, they are working on some form of derivative for bitcoin. A derivative is like an exchange-traded fund (ETF); an easy investing product that would track the price of bitcoin.

A Safe Way to Store Crypto

Most importantly, Goldman Sachs is working on a custody solution that would allow institutional investors to store millions of dollars in crypto safely.

“Physical bitcoin is something tremendously interesting, and tremendously challenging… From the perspective of custody, we don’t yet see an institutional-grade custodial solution for bitcoin, we’re interested in having that exist and it’s a long road.” Martin Chavez, CFO

Good News for Bitcoin

Don’t believe the panic. Goldman Sachs’ strategy is a sound and sensible way to approach bitcoin.

Goldman first needs to prove it can store bitcoin safely. Can you imagine if Goldman Sachs’ bitcoin accounts were hacked? A custody solution is a necessary first step before traditional investors trust their money to a relatively new phenomenon.

Secondly, the bank’s focus on bitcoin futures and derivatives reveals a long-term approach to trading. They are taking cryptocurrencies seriously. They’re looking to build products their investors understand.

It’s no wonder a crypto trading desk is low on the priority list. They simply don’t yet have the infrastructure to store and handle millions in daily, physical bitcoin trades.

Not only that, but high-volume, daily trading at a Goldman Sachs trading desk would introduce yet more volatility to a volatile market.

Wall Street Isn’t Ready for Crypto Yet

Although Wall Street is dabbling in bitcoin, it’s not yet ready to fully embrace it. As we have seen with bitcoin ETF rejections, Wall Street adoption will take time. But, rest assured, the foundations are being laid.

“When we talked about exploring digital assets that it was going to be exploration that would be evolving over time… Maybe someone who was thinking about our activities here got very excited that we would be making markets as principal and physical bitcoin, and as they got into it they realized part of the evolution but it’s not here yet.” Martin Chavez, CFO.

Wall Street is getting on board, but this will not happen overnight. Patience is key.

  • Cold storage means storing your bitcoin offline, making it less vulnerable to hacking.
  • Cold storage options include USB drives, paper wallets or hardware wallets.
  • “Deep” cold storage means placing the cold wallet in a vault or safety deposit box.

In the Swiss mountains, there’s an old military bunker where millionaires hide their bitcoin. The bunker was converted into a secure vault by Xapo – a cryptocurrency storage company.

The richest bitcoin investors arrive here with their encrypted hard drives in the strictest secrecy.

war bunker converted into bitcoin vault in switzerland
Credit: JOON IAN WONG/QUARTZ

This is the ultimate in bitcoin “cold storage.”

In simple terms, cold storage means storing your bitcoin offline where it cannot be hacked. It is the opposite of a “hot” wallet which is connected to the internet.

Why should I use cold storage?

Safety from hacks: Your bitcoin is most vulnerable when it’s stored online. Thieves and hackers can potentially access online wallets precisely because they are connected to the internet. To ensure your cryptocurrency wallet isn’t hacked, move it to an offline, cold storage wallet instead.

Long-term holding: Cold storage is ideal for long-term investors who want to buy crypto, hold it and forget about it. But if you’re looking to trade or spend bitcoin regularly, you might want a hot wallet, which is easier to access day-to-day.

What is a cold storage wallet?

Here are a handful of options to store crypto offline:

ledger nano cold storage bitcoin wallet plugged into a laptop

1. Hardware wallets

Hardware wallets are the ultimate cold storage, designed specifically to store cryptocurrencies. They are only connected to the internet for a short moment while you transfer your bitcoin. You then keep them safely offline.

Hardware wallets look like a small USB storage device. They are usually virus-proof, water-proof and come with backup technology. They’re easy to use. Some even have software so you can quickly check your balance. Examples include Ledger (pictured above) and Trezor.

2. Paper wallets

A paper wallet is exactly as it sounds: a piece of paper! That might not sound secure, but it’s never connected to the internet. You can’t hack paper.

The paper wallet contains your private key, either written by hand, printed out, or displayed by a QR code. Without the private key, no-one can steal your crypto.

The downside, of course, is that you could lose or destroy the paper wallet, so always keep a backup.

3. USB stick or external hard drive

Alternatively, you can keep your private key stored as a file on a USB stick or external hard drive.

4. Hot/cold storage hybrid

Some desktop wallets and software wallets now have a “cold storage” mode. You can store some of your crypto safely offline while keeping some online for frequent trading or purchasing.

The downsides of cold storage

If you lose your cold storage device, your bitcoin is gone forever.

Let’s say your hardware wallet is stolen. Your paper wallet is damaged by water. Your hard drive gets corrupted. In all these cases, you cannot get your money back.

It’s estimated that 30% of all bitcoin in circulation is already gone because of this problem.

When you’re using cold storage, always keep a backup, just in case.

Another problem is ease of access. Cold storage isn’t ideal if you want to spend bitcoin or trade it regularly. One option is to keep a large amount in cold storage and a small amount in hot wallets for frequent use.

What is deep storage?

Deep storage is the next level. Take your hardware wallet and place it in a vault or safety deposit box (or a military bunker in Switzerland).

Not only is your bitcoin stored offline and safe from hackers, it is now safe from theft too.

hooded man with hand out bitcoin regulation

Welcome to your daily Block Explorer roundup. Hope you had a great weekend! Today we’re looking at bitcoin regulation as Coinbase’s UK CEO claims we need more. But first, let’s take a glance at the markets.

All the top 20 coins are in the green today after a fairly quiet weekend.

1. Bitcoin – $6715 (+ 0.7%)
2. Ethereum – $277 (+ 1%)
3. Ripple XRP – $0.33 (+ 1.8%)

Things are strangely calm out there at the moment. In fact, bitcoin is around the least volatile it’s been all year. Historically, a period of calm is usually snapped by a wild swing upward or downward, so don’t be surprised if we see some big price movements this week.

Biggest winner and loser in the top 20

IOTA crypto logo transparent background

Biggest winner: IOTA (+ 15%)
Biggest loser: Zcash (- 0.1%)

IOTA is leading the pack today after Fujitsu said it is “well-equipped to help roll out IOTA as the new protocol standard.” IOTA aims to facilitate the ‘internet-of-things’ using blockchain technology, so a partnership with IT giant, Fujitsu, will open a lot of doors.

Does crypto need more regulation?

“[Regulation] is the best way to provide individuals and institutions a safe environment to invest.”

That’s the verdict from UK Coinbase CEO, Zeeshan Feroz. He told CCN that regulation is a good thing for the cryptocurrency market in 2018, explaining that a lack of regulation leads to risk in the market.

“We see the value in having some form of regulation for crypto exchanges as a means of ensuring due diligence and transparency in the crypto space.”

The issue of regulation in crypto is a controversial one. Many claim it will bring transparency to the market (and allow institutional investors to wade in). Others, however, see it as destroying the values and decentralized ethos on which bitcoin was built.

Where do you stand on bitcoin regulation? Do we need more to help attract  investors? Or should we keep bitcoin as decentralized as possible? Let me know in the comment section below.

Wild bitcoin price predictions 2018: from $3,000 to $20,000 +

Over the weekend we’ve had yet more wild price predictions for bitcoin.

The bull: Tom Lee of Fundstrat Global Advisors doubled down on his previous prediction that bitcoin will rise above $20,000 by the year-end.

He says hedge funds are playing a bigger role in bitcoin behind the scenes which could lead to a surge in prices. He also pointed to the correlation between bitcoin and emerging market stocks.

The bear: Anthony Pompliano had originally predicted a $50,000 price tag by the end of 2018. He now says he was wrong, by about four years.

He sees bitcoin plunging to $3,000 and says the market might not bottom out until late 2019. As for a full recovery, that’s not on the cards until 2023, based on how long it took bitcoin to recover from previous spikes.

With four months left in the year, where do you see the price of bitcoin going? $3,000 or $20,000+?

That’s all for today’s roundup. We’ll see you back here tomorrow.

In case you missed it: Why do Bitcoin ETFs Keep Getting Rejected?

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We’ve heard it hundreds of times. Blockchain is Web 3.0 or Geekdom’s latest marvel. Entrepreneurs, or business owners, who capitalize on this technology when young make it rich. Innovators like Ripple turned a $10,000 investment into $1.5 million in five years. Binance, only a year old, has a market cap of $840.8 million, according to Coinmarketcap. So it’s understandable that you’d speculate about launching your own business blockchain. You may not want to innovate anything, but, hey, blockchain’s said to be the next Revolution. Blockchain fanatics say it’s a core differentiator and value driver, leading you, if you have a business, to quite likely think maybe you should jump on board.

Should you?

Brian Winker’s take on blockchain for business

Sometime last year, I interviewed Brian Winkers, founder of blockchain money automation company bitlov.com that won first place in the 2015 StartUp Chile! Competition.

Winkers himself is an open-source developer and Bitcoin analyst who has been playing around with crypto projects since 2012 and has helped small and medium-sized businesses get on or, rather, more often, off the blockchain.

For Winkers, blockchain for small business is a bonkers idea, largely because of Bitcoin. Bitcoin’s platform has problems with scalability: The platform is slow – around ten transactions per second compared to Visa’s 5,000 to 8,000 transactions in the same time span. The ledger became congested. The company itself struggles with internal squabbling.

Truth is Bitcoin is competing with more scalable and less problematic platforms like Ethereum and IOTA, so businesses can profit from blockchain more than was possible, say, ten years ago.

The problem is the expense.

Blockchain expense

Blockchain technology is free if you want to do all the work. The problem is recruiting a blockchain developer, and that’s where the trouble starts. As of 2018, a decent blockchain developer costs anywhere from $150,000 to $200,000 at the very least. Forget the fly-by-night freelancer from a platform like Elance, Guru or the like. Actually employing someone from such a platform would likely cost you more, since you may have to pay for errors. Any coding error or slight mishap means the ledger needs to be dismantled and rebuilt from scratch, aside from which technological changes occur so rapidly that top blockchain developers regularly familiarize themselves with updates.

Want a top developer? Expect to pay $250,000-$450,000 for a whiz, or triple that for a world-class specialist, according to Pavel Supronov on Medium. You think blockchain saves you money? According to John Levine, crypto consultant, author, and speaker, blockchain is the most expensive database ever invented.

Is your blockchain for innovation?

To get some ROI from your blockchain investment, you need some really BIG idea that’s stupendously different than competitors and that delights hordes of people. (Think of a Ripple or Binance).  Such a feat, according to Winkers, is performed by only two out of every hundred ICOs or startups.

In all my years,” Winkers told me, “I’ve only found one ICO that makes sense, and that’s the one I’m with right now. A Russian company called Visor looking to create a payment coin. I’m providing some technical guidance, more on the architecture side. I think they have a good team that understands the need to meet the underlying business needs. It’s not about them having a big payday.”

Winkers added:

I regularly tell businesses not to proceed with Bitcoin, but to focus on more conventional solutions. I try to help them customize their business, figure out what they can do.  Unfortunately, most people who approach me are dazzled by Bitcoin and the ledger. They don’t understand it… but just about everyone’s doing it so they want on the bandwagon. Now if they’d have a wonderful remarkable useful idea that may be one thing, but they often emerge with impractical, unfeasible ‘solutions’, so it’s a waste of their time and money.

At the end of the day, if your mind is on blockchain for fame or money, Winkers doubts you’ll succeed. You’ll want to have a solid idea that makes sense and that lasts for decades.

Blockchain to save you money?

How about if you don’t want to innovate but are sold by the blockchain hype and want blockchain to expedite your business? Say, you’ve read reports like that by management consulting giant Accenture and McLagan who insisted that blockchain promises cost savings of 70 percent or more in finance areas? Or you read the 2014 EY report how blockchain-based businesses outpace competitors?

Well, blockchains have certain problems that you’d want to know about…

The National Institute of Standards and Technology (NIST) – a non-regulatory agency of the U.S. Department of Commerce – recently released a report for beginners to blockchain and business owners often tempted by new technology.

The report pointed out that blockchain can’t control users’ conduct.  The NIST also highlighted the misconception that blockchain is “trustless” – you need a great deal of trust in the technology, developers, and user cooperation for the blockchain to function. Further, users must manage their own private keys that, once lost, are harder to recover than usernames or passwords on centralized platforms.

Additionally, blockchains are massively inefficient. Set up a blockchain and you’ll need each and every user to archive, and constantly update, a complete history of all that’s happened on that blockchain. 

Finally, but not conclusively, blockchains also require a computational challenge to restrict the creation of new blocks. If it’s too easy, hackers could temporarily mobilize enough computing power to rewrite history; if it’s too hard, each new block will consume megawatts of electricity. And electricity for blockchain costs hundreds, if not thousands, of dollars.

On the other hand…

As we speak, blockchain improves all the time. More modern technologies produce decentralized platforms that have more bandwidth, are faster, more convenient, easier to program. IOTA, for example,  uses a “blockchain” that isn’t the traditional format but a new one called Tangle that knocks out the expense and time of mining. IOTA transactions are super-fast and process several transactions simultaneously.  Its structure perfectly suits the Internet of Things (IoT), where products and appliances like cars, home appliances and machinery “tangle”. Businesses on  “next generation” blockchains like IOTA report a smooth, fast and cheap experience that almost resembles that of the Web.

So to blockchain or not to blockchain?

A unanimous decision tree floating the Web may resolve your problem.

Ask yourself the following:

  1. If you need a database, are all the writers or participants on your team known and trusted? Is there anything you need to hide? Do you need to hire, or involve, trusted third parties? Do you need to control functionality? Are your transactions private? If your answers are a flat “no” to each of these questions, either stick to a standard database or use a public blockchain.
  2. Does more than one participant need to be able to update the data? Do you need to hire third-parties whom you’re unsure whether you can trust? Do you have any confidential data? Do you and all the updates on your team barely know one another or have some qualms of one or more users? If you answered “yes” to one or more of these questions, use a permissioned or hybrid blockchain.
  3. Does the data need to be kept private? Do you need to control who can make changes to the blockchain software? Do you have the money for blockchain programming and continuous maintenance and upgrades? Consider a private blockchain.
Do you even need Blockchain?

Even then Winkers would tell you to mull your decisions carefully. 

“I’ve always worked to make sure that small businesses aren’t taken advantage of by others in the technical fields,” he told me, “And that includes blockchain. For some it’s the right path, for others, it’s a costly diversion.”

“ICO companies that invest in blockchain have a 98% failure rate. That’s not the route,” Brian insisted, ”that I’d want to take.”

 

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