Facebook is reportedly working on a cryptocurrency to allow WhatsApp users to transfer money.
Revealed by Bloomberg, the exact details are yet to be revealed, but sources claim it will be a stablecoin, pegged to the value of a dollar. The technology will initially focus on sending remittance payments in India.
Don’t expect the Facebook coin to launch anytime soon. The team has some huge hurdles to overcome first. Specifically, Facebook will need to develop a custody solution in order to safely store the coins.
If Facebook is working on a stablecoin, they will also need a reserve of fiat currency to back the value. Other stablecoins, like Tether, have come under fire for failing to prove their true dollar backing.
India Remittance Payments: A Multi-Billion Dollar Market
Remittance payments (sending expatriate funds back to the country of origin) is big business in India. The country tops the global leaderboard in remittance payments, with almost $69 billion received in 2017 alone. Total global remittance payments are expected to grow 3.4% this year.
Facebook can plug into more than 200 million WhatsApp users in India, allowing them to quickly and easily send and receive payments.
At the FinTech Canada conference this August, leading cryptocurrency trial attorney Brian Klein gave an excellent overview of how cryptocurrencies have been used for illegal purposes and what law enforcement officials are doing to crack down on it.
In his talk, Klein points to the law enforcement efforts and litigation around the Silk Road as an early example of crime with a cryptocurrency element. At the time, the closure of the online black market and related arrests made headlines worldwide.
But how have things moved on in 2018?
Cash (not Crypto) is Still King in Criminal Activity
In criminal law, cash is still king.
While cases like the Silk Road made sensational headlines, cryptocurrency rarely plays a truly innovative role when it comes to more traditional criminal activity.
The crypto element may add a modern flair and conjure images of shadowy figures in Guy Fawkes’ masks but, for the most part, digital currencies remain a payment method rather than a new frontier in criminal acts.
Cryptocurrencies Are the New Swiss Bank Account: Money Laundering and Tax Evasion
You might still see movies where bank robbers demand that funds be wired to a Swiss bank account, but when it comes to money laundering and hiding assets, cryptocurrency has increasingly replaced the wiring of funds to jurisdictions that favor banking secrecy.
A key advantage of cryptocurrency is that it’s not tied to a single jurisdiction or set of laws – unlike Switzerland, which tightened its banking regulations after a large tax evasion investigation in 2008.
With cryptocurrency, there’s also no need to rely on intermediaries to handle transfers. And while a bank can be forced to turn over someone’s account information, there is no central authority for the Bitcoin system.
However, as noted in Klein’s talk, most current digital currencies operate on a public, permanent ledger. Bitcoin, for example, isn’t fully anonymous as many believe. Each transaction can be tracked, analyzed and de-anonymized — if the authorities can link a wallet address to a particular criminal – now or in the future.
The Emergence of Privacy Coins
Privacy coins circumvent some of the potential risks of making cryptocurrency transactions available on a public ledger.
Indeed, Bloomberg noted that criminals are increasingly ditching bitcoin for privacy coins like monero and zcash.
While there are different types of privacy coins, they typically obscure their ledger through a variety of methods including single-use wallets and transaction keys, as well as “coin mixing”, which involves pooling different transactions together to obscure the amount and parties involved in any given transaction.
In his talk, Klein notes that privacy coins are a key source of concern for law enforcement and regulatory agencies.
Fraud and Initial Coin Offerings (ICOs)
Reports suggest that as many as 80% of ICOs offered in 2017 were fraudulent.
Perhaps the largest was Pincoin, an ICO that raised $660 million during the ICO fever of 2017. Shortly after raising the money, Pincoin vanished, taking investor money with it. This is what’s known as an “exit scam.”
As a result of these scams, investors have asked securities regulators to intervene. The problem? In the US, there’s no set answer on whether ICOs are “securities.”
What’s a security? A security is a financial instrument, like a stock, bond or investment contract, that you are able to trade or transfer to someone else. If something is a security, it is often subject to regulation and must be registered with the regulators.
Until ICOs are classified as a security, we don’t know if they are something the Securities Exchange Commission (SEC) can regulate.
So long as they remain unregulated, ICOs fall outside the oversight and authority of securities regulators, potentially leaving investors more exposed to fraudulent activity
Although the SEC’s Chairman has previously claimed that ICOs are securities, the issue is still relatively untested in the courts. This leaves many ICOs operating in a grey area.
How Are Law Enforcement Officers Cracking Down on Illegal Crypto Activity?
This is still relatively new territory for law enforcement agencies and governments. However, they are increasingly capable of de-anonymizing transactions and tracking criminal activity. Below are just a few of the ongoing themes of law enforcement activity in the crypto space:
Governments and law enforcement are collaborating on an international scale. This includes sharing information, joint investigations, and global agreements around extradition.
Law enforcement is increasingly capable of tracking cryptocurrency transactions, especially where the ledger is public. AI and machine learning are also making it easier to analyze the blockchain and pierce anonymity.
On the blockchain, transaction history is not just public – it’s permanent. This can create a permanent chain of evidence for law enforcement to review and rely on, especially over time, as new data is gathered and different wallets and accounts are identified.
Bitcoin has been linked to illegal activity ever since the infamous Silk Road black market emerged. The cryptocurrency ecosystem has also played host to its fair share of scams, hacks, and frauds.
However, we should also remember that every bitcoin transaction, by design, is recorded in a permanent, transparent log. If bitcoin is used for nefarious purposes, that transaction is preserved forever.
Welcome to the weekend, folks. Grab a coffee and let’s recap the biggest news stories of the week in cryptocurrency and blockchain.
“The Mother and Father of All Bubbles”
“Dr. Doom” Nouriel Roubini is a New York economist who famously predicted the 2008 financial crisis.
Now he’s turning his attention to cryptocurrency, calling it the “mother and father of all scams and bubbles” in a statement made to US Congress.
His meandering statement also takes on blockchain, referring to it as a “glorified spreadsheet.”
Nouriel Roubini’s soundbites are damning and headline-grabbing. But they often ring hollow when we investigate it further. Here are some of the things he got wrong:
1. “Paying $55 dollars of transaction costs to buy a $2 coffee cup is obviously never going to lead Bitcoin to become a transaction currency.”
Roubini is referring to December 22nd, 2017 when the bitcoin transaction cost briefly hit $55. However, this was the peak of bitcoin mania. To use this as a broad statement on transaction fees is misleading.
Congestion and scalability is, undoubtedly, bitcoin’s largest challenge, but Roubini is sensationalizing the facts based on one day in bitcoin’s ten-year history.
2. Blockchain is “no better than a spreadsheet or database”
Actually, it’s significantly, objectively better.
A spreadsheet or database is almost always controlled by one person or entity. It can be manipulated and falsified. It can be easily hacked or stolen because there is usually one point of failure.
A blockchain is a spreadsheet that lives on thousands of computers all at once. It’s updated in real-time. It’s not owned or controlled by any one person, which means it can’t be hacked or manipulated (because the entire community would see it happen and refuse to accept it).
I say it’s objectively better because the bitcoin blockchain has never been hacked. (Only things built to interact with it, like exchanges, have been compromised).
3. Bitcoin has “now gone bust”
Actually, bitcoin has suffered much larger percentage drops in price and survived.
The first bitcoin crash in 2011 wiped out 93% of value. The second took 70% off the price. The third took 83%.
2018’s 65% decline might have involved a much higher market capitalization, but big percentage falls in bitcoin is nothing we haven’t seen before.
Bitcoin recovered from every previous crash without “going bust.” To say bitcoin has gone bust this time around is to underestimate the strength of the community, not to mention all the institutional support slowly building around it.
4. Bitcoin’s “only real use has been to facilitate illegal activities such as drug transactions, tax evasion, avoidance of capital controls, or money laundering”
Of course, bitcoin has been used for drugs and money laundering. But bitcoin has also empowered people, which is perhaps its most important use-case so far.
Bitcoin’s Spike, Tether’s Decline
Bitcoin recorded a rapid 10% spike on Monday. At the same time, the world’s largest stablecoin, Tether, fell from its $1 peg to as low as $0.85.
Tether is under renewed criticism that its tokens are not fully backed by real dollar reserves. The skepticism intensified on Monday after crypto exchange Bitfinex was rumored to be on thin ice financially.
Both Tether and Bitfinex are run by the same CEO, so concerns about Bitfinex lead to worries over Tether’s solvency.
0x (ZRX) became the first ERC-20 token to be listed on Coinbase this week. 0x is a promising decentralized exchange platform that powers the exchange of tokens, loans, gaming items, and just about anything else.
ZRX is available to those using Coinbase’s premium service, Coinbase Pro.
The price of ZRX soared 70% on the news but fell back 15% later in the week. The project’s founder and CEO urged caution on the price, saying: “This is probably a good time to remind everyone that 0x is a highly experimental technology that is built on top of another piece of highly experimental technology.”
Ethereum eBook– We released our second deep-dive eBook this week: Absolutely Everything You Need To Know About Ethereum. It’s completely free to download (no email address required).
Luckily, there’s plenty you can do to protect yourself. In this article, we’ll go over eight best-practices you should follow when using cryptocurrency.
1. Don’t Tell People How Much Cryptocurrency You Own
Or better yet, don’t tell anyone that you own cryptocurrency at all. If pressed about this, a good answer is that you own “some” or any other non-answer.
The reasoning behind this is pretty simple. Telling people how much cryptocurrency you own is a great way to turn you into a target, even to people you trust. There’s a reason one of the first things lottery winners are always told is to contact a lawyer before telling those around them.
Unfortunately, money makes some people greedy, and those people will stop at nothing to get what they want.
Unlike a bank account or other fiat cash storage, cryptocurrency is almost always stored close to you (on a computer or hard-drive in your home). It can be stolen relatively easily. And while your password may be strong, rubber-hose cryptanalysis or social engineering means that a strong password may not be enough when thieves are in close proximity to you.
2. Cold Wallets Are an Awesome Idea
Keeping all your currency in a hot wallet is asking for trouble. A hot wallet (one connected to the internet) is great for day-to-day transactions, but they are easier to steal from. A “cold wallet” means storing your crypto offline. Keeping most of your cryptocurrency safe in cold storage is just plain good practice.
Additionally, for an extra step of protection, you can use a hardware wallet. Hardware wallets are like an external hard-drive but designed specifically to store cryptocurrency.
Most hardware wallets are tamper resistant. Meaning they will erase themselves if someone tries to break into them, either physically or by attempting many passwords. This is much better than a laptop or other general-purpose device because if the laptop is stolen, any wallets on there can be attacked forever.
The most popular cold storage hardware wallets are Ledger and Trezor.
3. Never Use Exchange Wallets for Longer Than You Need To
In other words, don’t keep your bitcoin on Coinbase, Bitpanda, Binance, or any other exchange.
This one doesn’t make sense on the surface. Why wouldn’t you want all your currency ready to trade at a moment’s notice?
First off, online wallets, in general, are dangerous. You are not the only person with access to your funds. In fact, you don’t even have total control over the wallet. Not having full control over your wallet is a pretty glaring security issue, and should be avoided if possible.
Secondly, cryptocurrency exchanges can fail incredibly quickly. There is no fallback for crypto exchanges other than the ones they make. If the exchange fails, you may never get your cryptocurrency back. Your money may have even been used without your knowledge in an attempt to prop up the failing exchange.
And lastly, due to their extremely large turnover, exchanges are a much bigger target for hackers and other malicious people than a single wallet.
4. Always Encrypt Your Wallets
Now that your crypto is safely in a private wallet, your next challenge is keeping your wallet secure should the files themselves be stolen by someone across the internet.
The first line of defense for the wallet is a strong password. As with most passwords, length trumps complexity, and the combination of both is best.
That said, if you believe your wallet has been compromised, move all the cryptocurrency from the compromised addresses to new (hopefully secure) addresses. The fees you will pay to move them to the new address is worth the peace of mind.
Some wallets have one-click options to do this, often referred to as “sweeping”.
5. Use Separate Addresses Where Possible
Staying private in the cryptocurrency world is, in general, a good idea. Bitcoin has a reputation for being anonymous, but that’s not actually true.
When you transact with someone, they can see your “public address.” It looks something like this:
It doesn’t tell anyone your name, but if they search for this address (on a block explorer), they’ll see every transaction you’ve ever made using that address.
It means you’re effectively sharing your transaction history with someone else. You’re also showing that person who else you have transacted with and how much was transferred. That last one falls under the first rule we have, as sharing how much cryptocurrency you have makes you a target.
When transacting with non-private cryptocurrencies like bitcoin or litecoin, be sure to use separate addresses for each transaction.
An alternative is using a truly anonymous cryptocurrency like monero.
6. Double Check Everything
One easy way to lose currency is to send it to the wrong place or to use the wrong wallet.
Cryptocurrency transactions are “immutable” – they can’t be reversed. So if you send money to the wrong wallet, it’s gone forever.
For this reason, you should always verify that you know what you’re doing, and everything is correct.
For addresses, this is pretty simple. Check that the first few and last few characters are the same as your intended target. If the first and last characters are correct the rest probably are.
Though, there is some malware out there that will switch out addresses for lookalikes in your clipboard. For this reason, you may want to verify that the entire address is correct before sending large amounts.
If you’re still worried, try sending a test transaction first.
7. Always Make Backups (Use the 3-2-1 Rule)
Keeping backups of everything is a good idea in general, but it’s an especially good idea when it comes to cryptocurrency.
For most use-cases, the 3-2-1 rule for backups should be followed; three copies, two different media, one off-site.
That could mean keeping your private keys on:
CD or flash drive.
That’s three versions stored on at least two different devices or media.
Next, you should keep one off-site. In other words, nowhere near the other two.
A nice off-site location is a safety deposit box at a bank. Either hardware or paper wallets are good here, though paper wallets are (in this case) the safer bet. Note that this requires you to trust that the bank will not open your box for any reason.
The two separate media means that if one is damaged in some way, the other is likely not. And one off-site means that in the event of a house fire or otherwise, you still have a backup.
Remember that you should always encrypt your backups. If you back up a wallet file and someone malicious gets a hold of it, your currency is theirs to steal.
8. Never Spend Money You Can’t Afford to Lose
Finally, cryptocurrencies are incredibly volatile. This means the price can swing up very high, and fall very low. 40% swings of value in a single day are not unheard of, especially for smaller coins.
Much like with regular investments, storing value in cryptocurrencies is a calculated risk, and, there is always the chance that cryptocurrencies “go to zero”. And if you’ve put in every cent you have, you could end up in trouble.
The best-practices outlined here require a little extra work, but it’s well worth the effort. Keeping your crypto safe and secure is the most important thing you’ll do.
Ethereum is the second-biggest cryptocurrency after bitcoin.
But ethererum is nothing like bitcoin.
While bitcoin aims to revolutionize money, ethereum aims to revolutionize… everything else!
The first thing we suggest in this ebook is to stop thinking of ethereum as a money system.
Instead, think of it like Lego. Ethereum is a place for building things with blockchain technology.
We know that blockchain is revolutionary, but Ethereum actually gives us an easy way to use it.
That’s why huge companies like J.P. Morgan, BP, and Intel are experimenting with the Ethereum blockchain to create new apps and services.
The potential for Ethereum is phenomenal. But there are lots of hurdles to overcome. A few hundred words are not enough to cover the topic, especially if you’re looking to invest in the cryptocurrency.