The Weekly Hash – January 27 – 31

This digest is prepared for informative purposes only and does not represent an investment recommendation or investment advice. Please see our full disclaimer at the bottom for more information.

See below all the important happenings this week in the world of crypto, presented by the experts at Kraken:

  1. CoinDesk: Court Documents Reveal More Possible Investors in Telegram’s $1.7B ICO
  2. Financial Tribune: 1,000 Cryptocurrency Miners Given Permits in Iran
  3. Long Hash: Blockchain Companies in China
  4. WEF: World Economic Forum Announces Global Consortium for Digital Currency Governance
  5. Currencycloud: Cross-Border Payments Startup Currencycloud Secures $80M from Notable Investors
  6. The Block: The Taproot/Schnorr Soft Fork is Now Formally Proposed as Bitcoin Improvement Proposals
  7. GitHub: Bitcoin Gold (BTG) was 51% Attacked
  8. CoinTelegraph: One Wallet Owns 27% of Ether Behind MakerDAO’s Sai Stablecoin
  9. Hut 8: Hut 8 Announces Leadership Transition and Amendment of Key Agreements with Bitfury
  10. Monetary Authority of Singapore: Payment Services Act Comes Into Force
  11. DMCC: DMCC Announces Crypto Valley in Dubai at Davos 2020, Boosting Blockchain Ecosystem English
  12. Vakt: Saudi Aramco Energy Ventures Makes $5M Investment Into VAKT and Joins Platform
  13. CoinDesk: Silvergate Bank Adds 48 Crypto Clients in Q4 Even as Deposits Slip 4%
  14. CoinDesk: Crypto-Related Deposits Drop by Half at Metropolitan Commercial Bank
  15. Electric Coin Company: Zcash Community Votes to Allocate 20% of Network Mining Rewards to Support Development
  16. Bitcoin Suisse: Municipality of Zermatt Now Accepts Payments in Bitcoin
  17. The Block: Bitcoin’s Use in Darknet Markets Continues to Grow—Chainalysis
  18. Andriotto Financial Services: Switzerland Approves the First Articles of Incorporation Natively on the Blockchain
  19. Kraken: Meet Kraken’s New Managing Director for Australia – Jonathon Miller
  20. CoinDesk: Compared to Traditional Banks, Crypto Lenders See Booming Growth
  21. Messari: Stablecoin Transfer Value has Flipped ETH on Ethereum 
  22. Glassnode: How Many Entities Hold Bitcoin?
  23. Long Hash: The Most Profitable Crypto Sector? Lending.
  24. Kraken: Kraken Identifies Critical Flaw in Trezor Hardware Wallets
  25. CoinDesk: Ethereum Miners’ ETH Holdings Near Record Highs
  26. CoinTelegraph: The National Bank of Cambodia Will Launch a Digital Payments Network This Quarter
  27. Decrypt: You Would Need $21M to Attack Bitcoin for a Day
 
    • New court documents from the Telegram vs. SEC case indicate that U.S. investment funds Kleiner Perkins, Fortress, Draper Dragon, Dragoneer, DRW Holdings and Redpoint, may have invested in Telegram’s $1.7B ICO
    • The names of the eight companies and testifying representatives have been redacted; however, the file names of these documents contain the names of supposed investors
    • The documents apparently show that Fortress invested $10M for ~26.5M grams during the first round of the token sale in Feb. 2018
    • Head of DRW VC Kimberly Trautmann allegedly invested $5M for 13.2M grams hoping “to be able to trade them … at some time after the TON blockchain became operational.”  
    • A Redpoint representative, who represented several funds, together invested $10M, “I became interested in investing in the Telegram ICO because I did not think it was possible to invest in Telegram, the company, directly.”
    • Managing partner of investment firm EXANTE Anatoliy Knyazev, whose firm also invested in TON, said “Telegram and Durov have never offered to buy Telegram’s shares, and everyone apparently would love to. So people saw those tokens as a chance to participate in Telegram in some way.”
    • Dragoneer allegedly invested $15M in exchange of 39.7M of the future tokens back in January
    • Draper Dragon Tang allegedly invested $10M for 26.5M grams
    • Kleiner Perkins Caufield & Byers’ fund name allegedly invested $30M during the first round of the token sale, getting an allocation of ~70.5M grams in return
    • Iran’s Ministry of Industries, Mining and Trade issued +1,000 licenses for crypto mining units, according to Iranian ICT Guild Organization (IIG) official Hossein Saiedi Naeini 
    • Saiedi Naeini said a limited number of authorized mining farms currently are active across the country, “Our studies show that the crypto mining industry has the potential to add $8.5 billion to the economy…but high electricity tariffs plus stringent regulations have made the sector less appealing for small investors”
    • Coverage by CoinDesk & CoinTelegraph
    • So far 714 blockchain firms have registered in China in January, resulting in a total of 26,089 companies operating in the country; at this rate, China is expected to see 8,568 new blockchain-related companies by EOY
    • The total number of blockchain firms registered in China is 79,556, while 57,257 Chinese blockchain firms also lost their legal status or had their licenses revoked
    • 28.5% of blockchain firms in China are in the province of Guangdong, which is home to the major city of Shenzhen and shares a border with Hong Kong
    • Over +46% of Chinese blockchain firms have no more than $721 of registered capital, 8.32% of firms have $721 – $1,442, 26% have $1,442 – $7,208, and 9.17%  have +$7,208
    • The World Economic Forum, an int’l organization committed to improving the state of the world, announced a global consortium focused on designing a framework for the governance of digital currencies and stablecoins
    • The Global Consortium for Digital Currency Governance will aim to bring together private and public sector organizations to help achieve financial inclusion goals through digital currencies
    • WEF founder Klaus Schwab said, “Digital currency […] is a key area of interest for the Forum,” adding that he hopes the consortium will “catalyze the conversations necessary to inform a robust framework of governance for global digital currencies.”
    • Several central banks, including the Bank of England (BoE), will help the WEF to develop a governance framework
    • BoE governor Mark Carney noted, “Governance is the core pillar of any form of digital currency. It is critical that any framework on digital currencies ensures security, efficiency and legitimacy of payments while ensuring fair and open competition.”
    • Other organizations that will help the WEF include the Monetary Authority of Singapore, South African Reserve Bank and MIT, among others
    • Currencycloud, a London-based startup that builds tools and APIs for payment companies to enable money transfers, raised $80M in Series E round from notable investors, including Japanese financial services giant SBI Group, Visa, the World Bank Group’s Int’l Finance Corporation, BNP Paribas and Thailand’s oldest bank Siam Commercial Bank
    • Existing investors, including Notion Capital, GV (formerly Google Ventures) and Accomplice also participated in the round
    • The round brings Currencycloud’s total funding raised to date to $140M, with a valuation of ~$220M
    • Currencycloud aims to expand its payment methods and grow its business, particularly in Asia, with the fresh capital
    • Colleen Ostrowski, SVP and treasurer of Visa, also joined Currencycloud’s board, “Currencycloud is re-shaping the way that the platforms of the future are moving money around the world, and there is huge potential for the company to drive further innovation in the cross-border payments industry.”
    • The global remittances market is worth ~$689B, according to the World Bank, with the top-5 remittance markets located in India, China, Mexico, the Philippines, and Egypt
    • The Taproot/Schnorr proposed hard fork has been published as a series of Bitcoin Improvement Proposals (BIPs) – 340, 341, 342
    • The proposal is expected to bring a privacy feature to the protocol by making all txs – be it a simple payment between two parties, the opening/closing of a LN channel, or a smart contract – look the same to outside observers
    • Wuille said, “Note that the assignment of BIP numbers is not any kind of stamp of approval; it just means the process was followed (which includes some amount of public discussion). In this case I believe we (the authors) waited to request numbers until the proposal and writeups were fairly mature. Barring significant issues found in review (which remains welcome of course), I do not think we intend to make semantical changes anymore.”
    • Wuille is expected to soon open a Pull Request for the project’s reference implementation, as he previously signaled, which will likely bring another round of review, “If all goes well, and it’s clear that Taproot as proposed is what the ecosystem is willing to adopt, it will be merged, and discussion will start about how to activate it on the network. If that too goes well, a release with the activation will be published, and if/when the conditions to activate it are met, we’ll be live.”
    • Wuille clarified that the timeline of the soft fork’s launch is now in the hands of the ecosystem, “The later steps in this process are more up to the ecosystem than up to me or the other contributors.”
    • Bitcoin Gold was previously 51% attacked in May 2018 when it was estimated that up to $18M worth of BTG was double-spent
    • James Lovejoy, a researcher at MIT’s Digital Currency Initiative, reported that BTG was 51% attacked again on Jan. 23-24, amounting in +$70,000 worth in double-spent txs
    • According to FinTech data firm Digital Assets Data (DAD), 27% of all ETH locked in the collateralized debt positions (CDPs) of the old MakerDAO system belong to a single address
    • ~155,000 CDPs were initiated on the old version of Maker and 77% of those held under 0.05 ETH
    • DAD data science lead Brandon Anderson said, “There is one address that maintains 27% of the value locked in CDP’s. Likewise, the new Vaults system [e.g., CDPs for different assets… Ether is stored in an Ether vault, while BATs are stored in a BAT vault] has a similar distribution, with one address holding 15% of the value locked. As Maker continues to grow, we will see how these distributions play out and if there is more adoption within the lower bins.”
    • Anderson added that these addresses aren’t necessarily a single entity, “It is possible that one or more of those addresses could be smart contracts that contain ETH as a part of MakerDAO, and do not represent a single entity. Without a significant amount of additional research, we cannot commit to singling out/identifying these addresses.”
    • The data scientist concluded that, while there are large players that likely control a disproportionate amount of locked ETH in the ecosystem, the amount of total locked assets increased over time and “these protocols are indeed open to anyone that wants to participate.”
    • +3,500 vaults have been created with the new system, most of which hold +1 ETH
    • Publicly-listed BTC mining firm Hut 8 announced that Andrew Kiguel will step down as CEO and member of the Board of Directors once a successor is appointed, “The company will begin a thorough search and selection process for a successor.”
    • The company also amended key agreements with Bitfury to reduce operating costs and provide more autonomy to Hut 8 in managing its Canadian operations; Hut 8 will have improved flexibility to work with outside equipment vendors and Bitfury will have the ability to work with other miners in North America
    • A Hut 8 spokesperson said, ”The autonomy for Hut 8 will come from being able to price out alternative hardware… Previously, we had to purchase only from Bitfury, so we had less control over pricing and chips. Now, Hut 8 can seek out the best and lowest cost products on the market.”
    • The deal will allow Hut 8 to reduce its annual fees paid to Bitfury by up to $2M
    • The mining farm will repay its unsecured debt obligation to Bitfury of $4.75M and refinance it with a $5M BTC- collateralized credit facility with Genesis Global Capital, LLC
    • Kiguel added, “The amendment of these contracts will allow Hut 8 to operate more independently as the company continues to mature. Once finalized, Hut 8 will have reduced its operating costs by over $2 million annually. Bitfury remains the largest Hut 8 shareholder and an important strategic partner.”
    • Coverage by The Block
    • The Payment Services Act (PS Act), a law requiring all crypto businesses operating in Singapore to be registered & licensed with the Monetary Authority of Singapore (MAS), came into effect today to “enhance the regulatory framework for payment services in Singapore, strengthen consumer protection and promote confidence in the use of e-payments.”
    • The Monetary Authority of Singapore (MAS) believes crypto carries “significant” money laundering risks due to their anonymous and borderless nature of txs
    • The act adopts an activity-based licensing framework for different kinds of activities firms undertake and risks they pose – a money-changing license, a standard payment institution, and a major payment institution
    • MAS assistant managing director Loo Siew Yee said, “The activity-based and risk-focused regulatory structure allows rules to be applied proportionately and to be robust to changing business models. The PS Act will facilitate growth and innovation while mitigating risk and fostering confidence in our payments landscape […] Each service provider needs to hold only one of the three licenses.”
    • The Dubai Multi Commodities Center DMCC, the world’s flagship free zone and Gov’t of Dubai Authority on commodities trade and enterprise, partnered with CV VC and CV Labs to launch Crypto Valley – an ecosystem for cryptographic, blockchain and DLT – in Dubai
    • The valley will feature several co-working facilities, education and mentorship for those seeking careers in the blockchain space, and incubation services for crypto-based businesses
    • DMCC CEO Ahmed Bin Sulayem said, “DMCC is a dynamic business hub that drives local trade throughout Dubai. The launch of the Crypto Valley in DMCC will enhance the city’s dynamic business environment and support the wider strategy of the UAE government to attract the innovators, entrepreneurs and pioneers that will shape the future economy.”
    • Because the valley is situated in one of Dubai’s “free zones,” there are no currency restrictions, as well as no personal, corporate or withholding taxes
    • The DMCC plans to assist in establishing regulations for the crypto industry in the region
    • Saudi Arabia’s state oil company, Saudi Aramco Energy Ventures, bought into blockchain-based trading platform Vakt with $5M in new shares
    • The investment will be used to develop the platform, with a focus on expansion into the Asian market
    • The firm’s subsidiary Aramco Trading Co will add its trading volumes to the blockchain-based platform and use the platform for commodity post-trade processing
    • Coverage by Reuters
    • Crypto-friendly bank Silvergate added 48 crypto-related clients in 4Q, but saw deposits from those clients drop by -4% and overall deposits drop by -1.8% (i.e., non-crypto businesses included)
    • The bank added 11 crypto exchanges (including OTC desks), 21 institutional investors and 16 crypto businesses (i.e., mining operations or crypto application firms)
    • Silvergate CEO Alan Lane attributed these new clients to the growth of the Silvergate Exchange Network (SEN), which allows commercial customers to instantly move USD between different crypto exchanges
    • SEN txs topped 14,400 in 4Q, representing a +17% increase QoQ
    • The cost of deposits for Silvergate, which holds $2.1B in assets, increased by +68% from 0.5% to 0.84% 
    • The bank earned $1.4M in fee income from its crypto customers, down -12.5% from $1.6M in 3Q
    • Silvergate’s net income decreased by -45%, from $6.6M to $3.6M
    • Coverage by The Block
    • According to an investor presentation by crypto-friendly Metropolitan Commercial Bank, the firm’s deposits from the crypto industry decreased by -52% from 220 in 4Q2018 to $104M in 4Q2019
    • Crypto clients accounted for 4% of the bank’s total deposits at EOY, down from 13% a year earlier
    • Metropolitan’s deposits from crypto firms peaked in 2Q2018 at $369M
    • The Zcash community voted on a new methodology for distributing network mining rewards to support the development of the privacy-oriented crypto
    • 20% of Zcash mining rewards will be allocated to a development fund (7% ECC, 5% Zcash Foundation, and 8% in grants to third-party devs), while miners will get 80% as of block 1,046,400
    • The new rewarding structure could be implemented in Nov. 2020 if the Zcash Foundation and Electric Coin Company development agree on a final ZIP (Zcash Improvement Proposal) that reflects the community’s will
    • The Swiss municipality of Zermatt, a small town with a population of ~6,000, now lets residents pay taxes in BTC through Bitcoin Suisse’s point-of-sale system 
    • Residents must apply to the Zermatt Tax Office for an online crypto payment solution, otherwise payment must be made in the Zermatt town hall
    • Taxes paid in BTC will then be converted into CHF by Bitcoin Suisse and transferred to the municipality’s bank account
    • Coverage by The Block
    • According to Chainalysis, total darknet market sales grew +70% in 2019 to +$790M 
    • Darknet markets doubled their share of overall incoming crypto txs from 0.04% to 0.08% YoY
    • Elliptic reported that illicit BTC txs account for less than 1% of all BTC txs
    • The report notes that BTC’s use on darknet markets is “less influenced” by the highs and lows of the crypto, “While all categories see spikes in July around the same time as a Bitcoin price surge, darknet markets exhibit a much less dramatic spike than the others. Looking across the entire year, darknet markets’ transaction activity remains within a much narrower volume range, suggesting that customer behavior is less influenced by changes to Bitcoin’s price.”
    • The Block’s Steven Zheng previously researched crypto’s use in darknet markets and found that BTC remains the most widely accepted crypto on these platforms, followed by XMR and LTC – nearly 93% of the darknet markets examined accepted BTC for payment
    • Switzerland granted OverFuture the first articles of incorporation that allows a company to conduct an IPO of ordinary class-A shares on the blockchain, “The main difference with other security offerings on the blockchain is that the company has approved the first Swiss articles of incorporation that directly states the digital nature of the shares (tokens) and the use of the blockchain as the technology to keep the shareholders registry; meaning that the transfer of the company ownership can be achieved only with a transfer of the tokens on the blockchain and only the ownership of the token can give the status of shareholder.”
    • OverFuture, which was advised by Andriotto Financial Services, used Ethereum and the smart contracts provided by EURO DAXX, the European Digital Assets Exchange based in Zug
    • OverFuture deposited a prospectus in Switzerland and the OverFutures shares can already be seen on the blockchain 
    • As part of the acquisition of Australia’s longest-running crypto service provider Bit Trade on Jan. 14, the Bit Trade team will be joining Kraken and led by Jonathon Miller, Kraken’s first Managing Director for Australia
    • Miller co-founded Bit Trade in 2013 after becoming frustrated with the lack of secure and intuitive on-ramps for BTC investors in Australia, and also co-founded the Blockchain Association of Australia, which has been instrumental in bringing awareness to regulatory bodies and gov’t agencies 
    • Miller said, “We are incredibly excited at the prospect of helping Kraken grow its presence in APAC and helping service the growing demand globally for institutional-grade cryptocurrency platforms and services.“
    • On par with the 3Q2019, U.S. GDP rose at a +2.1% annual pace in 4Q despite the Fed cut interest rates three times; 2019 GDP was reported at +2.3%, down 0.6 percentage points from the year prior
    • Crypto lending firm Genesis reported that loans increased by +21% to $545M in 4Q, driven by demand from big investors and aggregators of smaller loans in Asia and Europe
    • Genesis CEO Michael Moro said, “Obviously the crypto sector is not even a beauty mark right now compared with the banking sector, in terms of the size and maturity. But there is rapid growth in this new market, and it’s not just us. There are other companies trying to accomplish similar things.”
    • There’s a lack of competition from established banks for crypto loans due to conservative risk-management policies and restrictions by regulators
    • BlockFi, a big crypto lender backed by Galaxy Digital and Winklevoss Capital, said it plans to add 5-10 new assets to its platform, including LTC & USDC, and to launch a credit card that offers rewards in BTC
    • Celsius Network, another crypto lender, said large institutional clients were becoming an increasingly key contributor to the platform’s loan growth
    • Genesis added that a new source of demand for cash loans in 2020 could come from “mining” firms that need capital to build, expand or upgrade data centers, “We will likely see miners leverage their existing balance sheet and treasury to source the cash necessary to invest in their operation. Those unable to source cash will be stuck mining on old-generation machines and might face serious profitability issues if the price of bitcoin doesn’t rise substantially.”
    • Coverage by The Block
    • ERC20 stablecoin transfer value surpassed ETH transfer value sometime during April-May 2019 and has maintained its dominance since
    • Messari analyst Ryan Watkins said, “This is largely the story of Tether (USDT) transitioning to Ethereum. On a weekly basis, the flip occurred mid-2019. Since then the change is striking.”
    • Tether began migrating tokens to Ethereum in April 2019
    • Read more
    • Crypto intelligence firm Glassnode reported that the number of BTC addresses is widely used as a proxy to estimate the number of BTC users/holders, however “this approach is fallacious, mainly because there is no one–to–one mapping between users and Bitcoin addresses: 1. Bitcoin addresses can hold funds from more than one individual (e.g. exchange addresses). 2. A single entity can own and control multiple Bitcoin addresses holding BTC.”
    • The firm applied a combination of industry–standard heuristics, proprietary clustering algorithms, and advanced data science methods on top of raw on–chain data, in an effort to quantify the upper limit of entities holding BTC, including individuals and addresses holding funds of multiple users (such as exchanges)
    • In 2019 the average number of daily new BTC addresses was +355,000, while the average number of new entities was ~100,000 (~28%)
    • The number of entities holding BTC is ~23.1M, 18.5% less than the current number of addresses with a non–zero BTC balance (~28.4M)
    • In Bitcoin’s history, there have been only 21 days where the net entity growth was negative
    • The bulk of entities (~22.3M) hold less than 1 BTC 
    • There are 75 entities that hold +10,000 BTC, and 7 entities than hold +100,000 BTC – all of which are exchanges: Kraken, Coinbase, Huobi, Binance, Bitfinex, Bitstamp, and Bittrex; these 7 richest entities (exchanges) control +2,350,000 BTC (~13% of circulating BTC supply)
    • The lending sector, which remains relatively small with 8 tokens, has dominated the crypto industry (not including sectors with five or fewer tokens) when looking at median ROI data over the past 90 days and year
    • The sector’s outperformance can largely be attributed to interest in Maker, Nexo, Ripio Credit Network, Aave, and Cred; overall, lending sector tokens posted a median ROI of +75% YoY and +15% in the past 90 days
    • Exchange tokens had an excellent median 1-year ROI, however, their performance has been less impressive more recently
    • DEX tokens are down over -40% YoY, and ~20% in the past 90 days
    • Although the 90-day figures are more varied, over the 1-year term no sector had a median ROI higher than BTC’s ROI over the same period (+140%), and lending and centralized exchanges were the only sectors that eclipsed ETH’s ROI over that period (+40%)
    • Each of the 349 tokens analyzed was categorized by Messari using methodology detailed here
    • Kraken Security Labs has devised a way to extract seeds from both crypto hardware wallets offered from industry leader Trezor, the Trezor One and Trezor Model T, with just 15 minutes of physical access to the wallet and a ~$75 glitching device
    • The attack takes advantage of inherent flaws within the microcontroller used in Trezor wallets, meaning that it is difficult for the Trezor team to do anything about this vulnerability without a hardware redesign
    • Kraken disclosed the full details of this attack to the Trezor team on Oct. 30, 2019, and we are now going public with this disclosure so the crypto community can protect themselves before a fix is released
    • Video of the vulnerability being exposed
    • According to crypto market data platform Santiment, the number of ETH held by all mining pools is near its all-time high of 1.69M ETH after steadily climbing from November’s low of 1.64M ETH
    • Santiment’s founder Maksim Balashevich wrote, “The steady accumulation suggests high confidence levels in the project among the majority block creators, at the very least relative to the current market conditions.” 
    • The cumulative balance of all ETH mining pools rose +11% from 1.52M a year ago
    • Miner balances increased sharply from 1.54M in June to 1.69M in October despite price falling nearly -50% to $170; as a result, cumulative balances fell back to 1.64M by early November
    • Balashevich added that because ETH’s price rallied by +36% in January and the broader trend ostensibly flipped bullish, miner balances could soon rise to new record highs above 1.69M, “Barring major market volatility this time around, we’re likely to breach this milestone within the next few days.”
    • Following a successful trial in July, the National Bank of Cambodia’s will launch a CBDC called Bakong in 1Q2020
    • Bakong is a closed system that supports real-time txs while the bank stores centralized records about where the money goes
    • The bank’s director-general Chea Serey described Bakong as “the national payment gateway for Cambodia,” adding that “Bakong will play a central role in bringing all players in the payment space in Cambodia under the same platform, making it easy for end-users to pay each other regardless of the institutions they bank with. Eventually, we hope to allow cross border payment through the Bakong system too.”
    • According to data from Messari Pro, it costs ~$21M to attack Bitcoin for a whole day, which is nearly 8x greater than Ethereum
    • Messari estimated the cost based on how much it would cost to rent this much hash power on crypto mining marketplace NiceHash
    • An attacker can gain control over the BCH, BSV, & LTC blockchains for well under $1M each, whereas the ETC blockchain could be subverted for just $326,000
 

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