Monday, October 10, 2016

How Bots Are Fueling High-Speed Bitcoin Trading

 

Investors have benefited from algorithmic ('algo') trading programs under many different circumstances, but these 'trading bots' can prove particularly valuable to those interested in cryptocurrencies.

Bot trading has reduced user error, enabled more rapid processing of information and given traders more time and flexibility. However, it may hold even greater potential in the crypto markets due to their immature nature.

Trading bots have been around for decades, seeing growing use in stock markets as digitization has taken hold. However, the digital currency markets are less than a decade old and with far less tenure than more mature markets, have had significantly less time to integrate algo trading.

Tim Enneking, chairman of cryptocurrency investment manager EAM, highlighted the differences between high-frequency trading (HFT) in traditional markets and those for cryptocurrencies.

He told CoinDesk:

"When it comes to use HFT for stocks, milli – and even micro – seconds matter. However, for cryptocurrencies, these very small increments of time are not nearly as important."

By harnessing algo trading, investors can obtain access to a wide range of trading strategies. HFT, for example, necessitates the use of software because it involves very rapid trades.

Arbitrage trading

Another strategy traders can access through trading bots is arbitrage – buying assets in one market and then selling them in another for a higher price, thus earning profit on the difference.

"Generally, bot trading can be profitable beyond a short period of time if it involves a sort of insightful arbitrage," Petar Zivkovski, director of operations for leveraged bitcoin trading platform Whaleclub told CoinDesk.

Further, there is more than one form of arbitrage, said Arthur Hayes, co-founder and CEO of leveraged bitcoin trading platform BitMEX, who elaborated on several other approaches.

Traders can look to profit from strategies involving futures contracts, Hayes noted. For example, they can benefit from the difference that exists between a futures contract and its underlying asset, an approach called futures arbitrage.

Investors can seek profits from the difference in prices of futures contracts based on the same underlying asset, but that trade on different exchanges.

Market making

Another strategy investors can access through trading bots is market making.

Hayes described this practice as "providing continuous buy and sell prices on a variety of spot digital currencies and digital currency derivatives contracts" in an effort to "capture the spread between the buy and sell price".

Zivkovski said that this practice involves "placing limit orders, generally near the current market price, on both sides of the book" meaning both buy and sell orders. Over time, as prices fluctuate and a trader's algo program automatically and continuously places orders, he or she can profit from the resulting spread.

However, he added the caveat that the intense competition surrounding this practice can make the strategy unprofitable, "especially in low liquidity environments".

"There is only so much firepower to go around," Zivkovski said.

Getting started

Fortunately, anyone can participate in bot trading. Traders can use off-the-shelf solutions, though relying on pre-made software programs can prove dangerous, noted algorithmic trader Jacob Eliosoff.

"Any money-making machine you can just buy and turn on will quickly get bought by lots of other people too, and there go your profits," he said. "Often even the initial profits are a mirage."

Investors who are new to bot trading might want to either learn programming or find an open-source bot they can configure based on their view of the market, Zivkovski said.

Hayes offered some slightly more technical advice, emphasizing the key importance of risk management and error handling.

"There is no standard Application Programming Interface (API) for all digital currency exchanges, and some exchanges have better API's than others," he said. "This means that a lot of time and energy needs to be spent making sure the trading logic can handle outages and properly calculates portfolio risk metrics."

Once a trader has developed and implemented their solution, constant revision is required, Enneking explained, adding:

"Algo trading is not a fire-and-forget missile. You don't just let it run by itself for extended periods."

Why Weight? Bitcoin Scaling is Moving Beyond Block Size

 


"We were all busy arguing about the block size, but everything else is crucial."

That statement, by Cornell's Emin Gün Sirer, may have come in the middle of the second and final day of the Scaling Bitcoin conference, but it was perhaps the overriding theme of this year's edition of the digital currency network's developer summit.

Despite the public visibility of a protest event scheduled in parallel with the conference, the content of this year's event did much to showcase that, for many developers, the "block size" is no longer a significant factor in discussions on how the network should increase capacity.

Over the course of both days, talks largely moved on to more incremental discussion of the various "trade-offs" that should be considered when making changes to bitcoin's basic components and the complex ways they interact.

Bitcoin Core developer Eric Lomborozo told CoinDesk:

"All engineering requires trade-offs. We're trying to figure out the range of possibilities and what trade-offs are more preferable."

Still, Lombrozo acknowledged that the block size (and the pronounced and public feud over whether to change the hard-coded limit to the number of transactions bitcoin can process) remains a "cultural phenomenon", one its technical community is still trying to move forward from as it navigates a market now dominated by blockchain solutions.

The day's talks provided a deeper explanation of subtle change in thinking, with Blockstream principal architect Christopher Allen noting that the social consensus of developers has deemed the block size a non-issue.

"I think it was very clear after [the previous conference], which debuted SegWit, that there's now a rough consensus of how things are going. The technical community is already a few steps beyond that," he explained.

Blockstream's Greg Sanders, emphasized the argument in his morning talk centered on lessons he hopes the community takes away from progress on Segregated Witness, a planned soft fork that will change how transactions are stored by the network and that continues to inch toward implementation.

"Let's stop talking about the block size. Let's talk about weight, the weight of a transaction, the weight of a block, the externalities it puts on the system. Let's talk about throughput. We can put more information in small spaces, so let's look at these problems," Sanders said.

Put more flatly, Blockstream's Jorge Timón said the block size is simply: "not an interesting topic."

'Social fork'

Yet while Timón spoke for the majority of attendees surveyed, a vocal minority was still represented at the conference in full force, a development Wong called a "social fork".

Investor Roger Ver, a vocal proponent for larger blocks, held a "Free Speech Party" on the night of the first event. Attracting roughly 20 guests to a nearby hotel, the event saw the screening of proposals that were rejected from the Scaling Bitcoin conference, as well as discussion on why capacity should be dramatically increased to accommodate more users.

That meeting emphasized discussion of a proposal for "Xthin blocks", as well as work by researchers to prove how larger bitcoin blocks, as enabled by an alternative proposal called 'Bitcoin Unlimited', could be executed on the network without increasing the time it takes for the blocks to relay to nodes and miners located around the globe.

Also aired were reasons why the initiative should have been considered by the Scaling Bitcoin conference, as well as fears that an alternative digital currency could overtake bitcoin's market position. Further, attendees criticized the conference's approach as "not data driven", while top-level bitcoin scaling initiatives like Lightning were dismissed as "vaporware".

Bitcoin Unlimited's Jerry Chan, who spoke and attended both events, said he believes the decision to exclude the talk was due to a desire to "avoid contention at all costs".

"I think that some of the talks that were excluded would have been very useful because they directly address issues that were brought up in the past," he said.

Perhaps most notable, however, was who the protest event attracted, as major mining sector representatives, including Bitmain's Jihan Wu and ViaBTC's Haipo Yang attended.

Incremental changes

Elsewhere, the theme of the day's talks was on smaller changes that could be made to the network, and the sometimes intricate side-effects they may have on bitcoin at large.

For instance, Blockstream's Peter Wiulle gave a talk on Schnorr signatures and how they compare to the elliptic curve digital signature algorithm (ECDSA) bitcoin uses to ensure funds are spent by their owners. Still, the talk highlight just how much work would need to happen should even this small tweak to bitcoin's gears be considered.

"Schnorr signatures are not a standard. ECDSA is a document that exactly specifies all the math that needs to happen," Wiulle said. "Schnorr is a general idea."

With Schnorr signatures, Wiulle presented how the concept is now enabled by SegWit and how it could require only one signature for transactions with multiple inputs, and that only this signature to be sent across the network for the transaction. However, he noted how bitcoin's address structure posed a problem for the change, as did new potential attack vectors, leading him to ultimately call for more academic work on the idea.

Yet another talk, on the performance of proof-of-work blockchains, saw a comparison of block propagation on the bitcoin network and other alternative blockchains.

Here, presenter Arthur Gervaise of ETH Zurich reviewed how simulations conducted at the Swiss university show the time between bitcoin blocks, currently set for roughly 10 minutes, could be reduced to 1 minute, while enabling 60 transactions per second safely.

That's not to say that big ideas were not discussed, as some proposals saw prominent developers including Peter Todd and David Vorick overview radical ways to rethink how bitcoin could work.

Particularly notable was Todd's talk on scaling via client-side validation. Here, Todd posed the question of whether miners were needed to validate transactions at all, questioning how redefining their relationship with nodes (a fundamental building block) could lead to better scalability.

"You can say miners validating is kind of an optimization. It does have some interesting social effects. I can create this rule and a litecoin and bitcoin can exist on the same system," Todd theorized.

Academic mindshare

Yet, there was a sense that bitcoin's emphasis on fundamentals is perhaps frustrating to academics intrigued by how it could solve larger issues.

For example, Sirer's talk on an update to his 'Bitcoin Vault' proposal, in which 'covenants' would be added to transactions as a way to restrict the risk they could be executed a malicious actor in the event of theft. In a Q&A session, the idea was met with more pointed questions.

There was particular disagreement, acknowledged in the talk by Sirer, about how this would compromise the fungibility of individual bitcoins, or the property by which any one bitcoin can be exchanged for any other. However, Sirer called for a willingness to except perhaps imperfect solutions to the negative side effects.

"At the end of the day fungibility is already not protected by any in-protocol mechanism, it's protected by the social contract that we must have fungibility," he said.

In comments, visiting academic Bryan Ford of École polytechnique fédérale de Lausanne (EPFL), noted he would have liked to have seen more examples of "significant improvements".

A self-proclaimed "outsider", Ford questioned how much he would continue to invest in the community given that the narrow focus.

As such, the comments point to the divisions that could be forming around the bitcoin community, even as it tries to put more contentious scaling debates in the past.

However, Ford at least acknowledged progress has been made, adding:

"It's good that it's at least diversified beyond block size."

Friday, October 7, 2016

Nasdaq Wants to Patent Blockchain Backups for Exchanges

 

Nasdaq is looking to patent a way in which a blockchain can be used to record exchange transaction records.

On 6th October, the US Patent and Trademark Office (USTPO) released an application for "systems and methods of blockchain transaction recordation", originally submitted by Nasdaq on 31st March. It is attributed to Tom Fay, Nasdaq's senior vice president of enterprise architecture, and Dominick Paniscotti, associate vice president for enterprise architecture.

Essentially, the application details an exchange system comprising digital wallets, an order book and matching engine, with a "closed blockchain" utilized as a record of transactions that is updated in real-time as participants act.

As the application details:

"A match is identified between data transaction requests and hashes associated with the digital wallets associated with the respective data transaction requests are generated. The counterparties receive the hashes of the other party along with information on the match and each party causes blockchain transactions to be added to the blockchain of the blockchain computing system."

From there, the exchange checks the contents of the blockchain, looking for the data associated with those digital wallets. An additional backup of that information is also kept in a separate database.

It's perhaps unsurprising that Nasdaq would move to file applications related to the technology. Last year, the exchange operator unveiled Linq, a blockchain project focused on private markets, and in May, it launched new blockchain services for its global client base.

The application's contents reveal that the company is largely looking to apply claims to the method of using a blockchain in an exchange environment, rather than the system itself. USTPO records show that Nasdaq originally sought a number of claims related to the tech, but that these were cancelled after the application was first filed in March.

So, Ethereum's Blockchain is Still Under Attack…

 

You might not have noticed, but ethereum is under attack.

What began over two weeks ago with spam attacks that led to large-scale ethereum node outages has escalated into a battle that has pitted the platform's developers against unknown antagonists. This might sound like an exciting Hollywood movie, but it's mostly been carried out on message boards and with code.

Shots were first fired at ethereum's big developer conference, Devcon2, with a mysterious message written in German and delivered via transaction method payload. The message said "Go home", but to those who have been following the network's contentious changes this summer, the full meaning was clear.

Since then, block creation and transactions have continued to be impacted, with nodes syncing up to the network more slowly. But while various fixes have since been implemented, the attacker continues to find vulnerabilities to exploit and, in turn, create new ways to launch denial-of-service (DoS) attacks.

The result: the network is being flooded with transaction spam.

Blockstack co-founder Muneeb Ali called it a "cat-and-mouse game" that could potentially continue to slow down transactions on the network, the second most popular by market cap.

Most of the attacks have thus far affected nodes running the Go-version ethereum client (Geth), the most popular implementation of ethereum, though Parity, an alternative client released at the conference, has been impacted in some instances.

The latest release, called "Dear Diary", aims to stop the "root cause" of many of the attacks with a technique called "journalling."

Anatomy of an attack

One problem that has emerged for client developers is that those behind the attack are constantly switching their tactics.

The attacker or attackers are deploying smart contracts to the ethereum blockchain, and then committing transactions that impact how clients handle data, slowing them down to the point that blocks and transactions become delayed.

(For a peek into what's going on, see the barrage of small transactions sent by the attacker to overwhelm the network).

The first line of attack targeted an out-of-memory bug, which the Geth team moved to fix in a subsequent software update.

"In ethereum one of the challenges is that we have this huge database that grows much faster for example than bitcoin," said ethereum developer Péter Szilágyi, who works on Geth, adding that the attackers have taken advantage of this issue.

"We never thought about this attack vector," he added.

The focus on Geth has prompted some users to spin up nodes using Parity. In the wake of the first attacks, most miners made the switch.

However, Geth is still by far the most popular client, numbering nearly 7,000 nodes compared to Parity's 900, although the numbers are constantly fluctuating.

Meanwhile, Ethereum Foundation IT consultant Hudson Jameson chose to emphasize that the Geth team has been able to fix every issue that's been thrown at it so far. This argument was also stressed by ethereum miner Jonathan Toomim, who called the fixes, deployed within days, "impressive".

"The network will go on, and these nuisance attacks will stop eventually," he reasoned.

Yet for how long remains unclear. Each time Geth or Parity releases an update, the attacker finds a new vulnerability.

Those behind the attacks don't seem to mind the cost of doing so, having spent thousands of dollars worth of ether – the cryptocurrency of the ethereum network – to fuel the attacks.

"To date, the attacker has spent over $3,000 worth of ether, solely in gas-costs," Jameson estimated.

Impact on users

Many argue that the attacks are an inevitable result of the way ethereum is designed, and that it has a  "large attack surface."

More on-platform capabilities means that there are more opportunities for trouble, at least compared to other blockchain networks, which are less ambitious..

"The larger problem is that the way ethereum is designed. There's too much exposure so the attacker can trigger certain things or send certain types of transactions," Ali said. "Think of it this way: ethereum allows people too much freedom over what they can do to someone else's computer."

Even if Geth nodes are no longer crashing completely, however, it has resulted in an overall slower network, making ethereum less available to anyone who want to spin up a smart contract or send a transaction.

Since the attacks, some users have reported having problems accessing their funds with Mist, the popular ethereum wallet.

One user even observed when switching pools that mining profitability has decreased for smaller pools, which is potentially a concern for an ecosystem that doesn't want bigger miners to have more control.

The network is also more vulnerable overall if all of its nodes are not functioning properly.

"Causing large portions of the nodes or miners to drop off the network, or fall behind, is naturally rather severe, since such attacks can be a prequel to a double spending-attack," Jameson said.

However, some users seem unfazed, with many developers continuing to work on other projects. Two ethereum projects, FirstBlood and SingularDTV, held crowdsales to raise project funds amid the attack.

Finding a fix

As far as reducing the impact, developers have come up with ideas for how to fix the problem with medium- to long-term changes, in what Jameson calls an "ecosystem-wide effort."

"One of the solutions is to make it more expensive to perform these kinds of attacks," Szilágyi said.

He explained that raising the prices for certain ethereum commands might mean protocol-level changes to Metropolis, ethereum's next big software release that is intended to be more developer-friendly.

Jameson also mentioned rebooting the bounty program, through which developers can earn bitcoin for detecting and reporting bugs. "That way people can submit their flaws legitimately instead of attacking the network," he said.

However, his hope is that the detection of these bugs will make ethereum stronger in the end.

"In the long-term, these attacks increase the resiliency of the Ethereum network," Jameson added said, arguing that the diversity of clients handicaps an attack from impacting all nodes.

Role of the foundation

Others seem to think that it's unclear how quickly that ethereum will recover.

"The Ethereum Foundation is trying to downplay them and spin the situation in a good way, saying that attacks will help to harden the network," ethereum classic lead developer, Arvicco, argued.

While the comments are not surprising given that he leads an alternative project, they point to the overall sentiment of those who have been critical of the organization that funds protocol development and its handling of the situation.

Others remain uncertain what to take away just yet.

Ali said he thinks ethereum team has done a good job thus far in addressing the vulnerabilities.

Still, he suggested there might be no end in sight should ideological motivations to disrupt the network continue unabridged, but that this ultimately might be the best outcome.

"[By then,] most of the practical issues with the software are fixed so that it becomes hard enough and it's no longer a problem," he said, adding: 

"I think it's hard to predict."

Thursday, October 6, 2016

Bitcoin Provisions in the North Carolina Money Transmitter Act

 




The North Carolina Money Transmitter Act was recently extended to cover bitcoin traders with House Bill 289, signed in July 2016 by State Governor Pat McCrory. Deemed as the 'virtual currency law' in the state, the bill introduces a legal framework for regulating bitcoin and blockchain technology.

While the legislation had to go through an elaborate and long discussion period, including the feedback of various stakeholders, the bill is seen today as business-friendly by many. It brings legal clarity in the field of virtual currencies in North Carolina, but does not open venues for over-regulation.

The Chamber of Digital Commerce and other involved parties contributed to the formulation of this addition to the act. They have also expressed satisfaction with the outcome.

Naturally, this definition has been the first step towards regulating the virtual currency field in North Carolina. According to the act, bitcoin traders will fall in the category of money transmitters and as such, they will have to obtain a license. There are a number of exempt options such as being the agent of a payee, but they need to be duly demonstrated.

A license will not be needed from virtual currency miners, as well as blockchain software companies for a number of services such as smart contract platforms, smart property, multi-signature software and non-custodial and non-hosted wallets.

As commented by bitcoin advocates, the legislation is seen as matching the needs of the newly emerging industry. It distinguishes between businesses using virtual currency versus those using distributed ledgers. Additionally, the law clarifies which types of activities trigger the licensing requirement for blockchain technology companies.
The licensing process

The licensing application process is also defined in the act. Money transmitters will have to follow the procedure set via the Nationwide Mortgage Licensing System and will be licensed by the North Carolina Commissioner of Banks.

The most important documents that need to be presented during the licensing include business entity paperwork, active money business services registration with the United States Department of Treasury Financial Crimes Enforcement Network, business plan, anti-money laundering program documents, and audited financial statements, among others.

The minimum net worth for licensing is set at $250,000 and it should be kept at all times. The application fee is $1,500. There is also an annual assessment fee of $5,000 for transmission volumes below $1 million. Above that amount, the assessment fee is calculated as a percentage of the transferred volume on top of the basic annual assessment fee of $5,000.
Bond requirements

One of the new elements introduced with this addition to the act is the money transmitter bond licensing requirement for bitcoin traders. This special type of surety bond is needed in order to bring up the level of security in the business. The function of the bond is to guarantee that bitcoin traders will handle their clients' virtual currency assets according to the applicable laws.

The bond amount that traders need to post depends on the volume of money transmissions per year. The standard bond requirement is $150,000 for money transmission volumes below $1,000,000. For volumes between $1,000,000 and $5,000,000, the bonding requirement is set at $175,000.

The next level is set at $200,000 for traders with an yearly volume between $5,000,000 and $10,000,000 per year. For volumes between $10,000,000 and $50,000,000, the bond needs to be $225,000. Finally, if the transmission volume is above $50,000,000, the bond requirement is $250,000.

In order to get bonded, virtual currency traders will have to apply for a money transmitter bond with a surety provider. After examination of their financial profile, the surety sets a bond premium, which is a percentage of the required bonding amount. Stronger finances and solid business stats are key to lower bond costs for money transmitters.

Accepted rather positively by both businesses and legislators, the bitcoin addition to the Money Transmitter Act is bound to bring the necessary level of regulation to virtual currencies and blockchain technology in North Carolina.


Wednesday, October 5, 2016

Scams or Not, Crypto Tokens Have History on Their Side

 

Alex Millar is a blogger, podcaster and YouTube publisher with a degree in engineering physics from Queen's University in Kingston, Ontario, Canada.

In this opinion piece, Millar looks at how cryptographic tokens can be viewed in a long line of historical investment instruments, and why despite the scams, there remains an argument they should be allowed to continue.

Contract with wax seal

Even before the emergence of money, victims of a crop failures often took short-term food loans and paid them back with interest. When money emerged, interest was usually paid in either a fraction or a multiple of 12 to simplify accounting.

The practice of charging interest on loans, called "usury," has been frequently and widely condemned, regulated or outlawed by authorities beginning with the Buddhist Jatakas texts from 600-400 BC. Critics claim usury exploits the needy, is a form of unearned income, and contributes to inequality.

Basic economics shows that capping the price of anything creates a supply shortage.

Interest is simply the price of borrowing money and capping interest reduces the incentive to lend, thereby creating a shortage of loans. A shortage of loans means that lenders willing to lend on the black market can charge more interest than would be possible in an unregulated market.

In this way, those who attempt to protect borrowers by regulating usury risk doing more harm than good. To make matters worse, disputes in a black market cannot be settled using a public arbiter, which means that those who are wronged often turn to violence or threats of violence.

A window for scammers

In the Middle Ages, contracts emerged that legally skirted anti-usury laws by tying repayment to profit, rather than time. These contracts varied in terms of who profited and who would be held liable for losses. The classic commenda contract rewarded one-quarter of profits to the laboring partner, with three quarters of profits, and all the risk, to the investor.

Many early trade voyages were funded through contracts called societas, which introduced the concept of limited liability, and often divided the equity of a ship into 24 shares, called carati. After the completion of each voyage, the ship and its assets were liquidated, with profits returned to shareholders.

Over time, the complexity of these contracts grew. In 1602, the Dutch East India Company sold shares not in a voyage, but in a fleet of ships that continually traded with Asia. This made accounting more difficult, as amortization of assets had to estimated to calculate profits. To make accounting even more complicated, this new breed of companies had hundreds of shares, each of which could be traded on the free market.

It was impossible for shareholders to check the veracity of large companies' accounts. However, darkness in knowledge is hidden by the brightness of great profits.

This opened a window of opportunity for scammers. Before its first ship ever left harbor, the South Seas Company used investor funds to open posh offices in the best parts of London. Stock prices initially skyrocketed then crashed when dividends failed to materialize.

The effect of regulation

Over time, regulations have been enacted to protect investors.

However, like laws that cap interest rates, these new regulations often have negative unintended consequences. For example, take accredited investor laws, which make it illegal for low-net-worth individuals to invest in non-established companies.

The effect of these laws is to redirect capital from new ventures to established companies, like The First Hawaiian Bank. Founded in 1858, the bank now has 2,250 employees.

In August, it raised $485m in an IPO. Surely established banks have good reasons to raise funds, but in the absence of accredited investor laws, some of the capital that funds banks would instead fund innovative startups.

Accredited investor laws also give wealthy investors an unfair advantage because a reduced supply of capital for new ventures creates cheaper prices.

A new financial dawn

This article was inspired by Preston Byrne's article Against Tokens (And Token Crowdsales), in which he argues that crowdsales are illegal and are usually scams. I don't disagree with either of those statements. However, just because something is illegal, that doesn't make it wrong or undesirable. At one time, it was illegal for women to vote.

Furthermore, even a company with a thumbs up from the Securities and Exchange Commission isn't prevented from scamming shareholders, as evidenced by the options backdating scandal at Apple. This is an example of the fence paradox, which illustrates how regulations can often cause greater harm by making people feel safe.

Like the contracts that emerged, in part, to skirt anti-usury laws, cryptocurrency has emerged, in part, to skirt today's financial regulation. Anyone can now create, sell and trade cryptographic tokens that represent equity (or debt) in a company. Any investor can pay any entrepreneur, and remain anonymous if he wishes.

Of course, there will be scams and failures. And sometimes, there will be successes. Those who succeed will probably not do so with complicated 44-page white papers, they will do so with new, simple and transparent contracts and ideas for creating wealth.

Irrespective of the law, the legal suppression of innovators looking for funds and people looking to invest is ending. This is good news because it means the resource that is money will become more efficiently deployed.

Tim Draper Leads $4.2 Million Series A for Blockchain Startup Factom

 

Blockchain startup Factom has raised $4.2m in new funding to build a series of unnamed new products for its blockchain data network.

The Austin, Texas-based company that lets users verify data using its Factom blockchain, fresh off winning a $200,000 grant from the US Department of Homeland Securities, now plans to scale with a series of hires to be announced over the coming months.

Factom co-founder and CEO Peter Kirby said the Series A round, led by venture capitalist Tim Draper, will also be used to further develop its core technology and suite of products.

Kirby told CoinDesk:

"We really believe that when you move all the data in the world into the blockchain you can create a lot of transparency and value."

Factom had previously raised over $3m, and already has three enterprise products: a data protection tool, an identity solution and distributed data storage service similar to a more traditional database.

In total, Factom's protocol is being used to secure 67.4 million records, according to its official website.

Behind the investment

Investment news site Frisco Fastball picked up the Series A filing with the SEC and provided insight into the round, ultimately concluding that the funding could represent confidence in the company given that it sold 100% of its offering.

"On average, companies in the not disclosed sector, sell 67.77% of the total offering size. Factom sold 100.00% of the offering," the news source wrote.

The comments may be a surprise given that the startup has long been one of the more contentious in the industry. In addition to questions about its use of a publicly traded digital asset to fund its operations, Factom has also seen potentially key partnerships fail to materialize.

Still, investor Tim Draper lauded the firm in statements to CoinDesk, focusing on how he believes the platform can mitigate issues common to centralized data storing services.

Draper said:

"Centralized data is prone to critical failure by any individual mistake, whether by user error or malicious hacking. By decentralizing data through the blockchain, Factom avoids critical failures due to user error or hacker."

Tuesday, October 4, 2016

Adam Back Appointed Blockstream CEO in Leadership Shake-Up

 

Bitcoin startup Blockstream has a new CEO.

The company said today that its first CEO, Austin Hill, is formally stepping aside, with current president Adam Back being appointed to the role.

As part of Hill's exit from the firm, he has also stepped down from the board. Blockstream said that Hill was leaving the company to "pursue other opportunities".

Back, a noted cryptographer who is one of the startup's founders, said in a statement:

"I am honored to take on the CEO position at this important phase in the company's growth and am excited about leading Blockstream to its full potential. We have a world­class team dedicated to building the foundation that will underpin the transformation of finance for years to come."

It's been a busy year for Blockstream, which announced $55m in new funding in February. To date, the startup has raised more than $70m in venture capital in order to support its efforts to develop bitcoin-focused initiatives such as sidechains and the Lightning network.

Hill's exit comes as the startup has moved to bolster its developer ranks. Earlier this summer, Blockstream acquired bitcoin wallet startup GreenAddress, which further boosted its employee base.

JPMorgan is Quietly Developing a Private Ethereum Blockchain

 

Wall Street mega-bank JPMorgan has co-developed a private, permissioned version of the ethereum network.

The project, presented during a meeting of the Hyperledger technical steering committee last month, was recently demonstrated during the Sibos convention in Geneva. But while the bank avoided the headline-grabbing announcements of its peers like Bank of America and UBS last week, this doesn't mean it is shying away from discussing its work.

Called Quorum, the platform was developed in partnership with ethereum startup EthLab, and it is one of the first projects to come out of a working group within the bank known as the Blockchain Center of Excellence.

Amber Baldet, program lead for the division, explained that JPMorgan is now looking to open source its blockchain technology work in order to get more developers involved.

Baldet told CoinDesk:

"One of our goals in working with an open-source platform and contributing our work back is to encourage collaboration and innovation. The more people that get involved, the faster we will see adoption challenges addressed and the more robust the system will become."

In tandem with the development of Quorum, Baldet said JPMorgan created a software development kit (SDK) aimed at encouraging developers to create applications.

Baldet went on to describe the project as "an additional choice" in the company's toolkit of software offerings aimed at solving business problems.

Notably, Quorum is the second major blockchain-inspired offering to come out of the JPMorgan's technology labs. Earlier this year, the bank showcased Juno, a project it called a "distributed crypto-ledger" that was designed to enable quick value transfers between network parties.

The developers behind Juno departed the bank earlier this year to form their own startup, Quartz reported in July.

Inside Quorum

According to JPMorgan, the project was developed following discussions during the first ethereum developer conference (Devcon1) in 2015.

"While speaking with Jeff Wilcke of EthLab there, we recognized that there was a potential overlap between his goal to build a voting-based consensus mechanism to replace proof-of-work, and our goal to build a high-speed, permissioned ledger," Baldet explained.

Quorum, JPMorgan

According to Wilcke, the system itself has several elements, involving teams on both the JPMorgan and EthLab side.

EthLab manages development on the consensus rules and core changes to the code itself, whereas JPMorgan acts to sign the private messages broadcast across the network.

Wilcke explained:

"The JPMorgan chain requires special rules that will allow private transactions, ie there's a separation between public and private contracts. [Public transactions] can be seen by anyone and [private transactions] can only be seen by parties that have access to a key belonging to that particular party."

Wilcke suggested that the work could have some impact on the future of the ethereum network – potentially foreshadowing the intersection of public and private chains – but indicated stopped short of any broad predictions.

"Time will tell," he added.

Next steps

From here, the project will see further iteration following feedback from both participants and industry stakeholders.

Baldet said that JPMorgan has no plans to monetize the work, but rather intends for the project to act as a vehicle for connecting with developers in the open-source community.

"While our current applications using Quorum function within JPMorgan, releasing the software is an important stepping stone to launching projects with other organizations," Baldet said.

Baldet also went on to suggest that the project could serve as a first step toward building a system that could connect private institutions via distributed networks.

She concluded:

"While we expect some convergence around a few key 'enterprise-grade' platforms, interoperability will be next year's buzzword."

Monday, October 3, 2016

 
Have you ever wanted to send a completely anonymous payment to someone, then realised your method wasn't so anonymous after all? Security is a huge issue in this time and age, and while things are being done every day to make payment sending faster and more secure, Umbra has done a great job of creating an anonymous cryptocurrency that offers features similar to Skype and Bitcoin; it's completely hassle-free, and it's about as private as you can get. Let's take a look at it, shall we?

An umbra is the darkest part of a lunar eclipse, and it's almost as dark as the Umbra is in terms of security- Umbra's a privacy centered coin that originated as a fork of bitcoin. With similar intentions to Monero, although slightly more privacy-centered, it was not intended to directly compete with bitcoin in terms of standard sending and recieving; it's simply not what the coin was primarily made for, and you have to realize that about the coin.

While designed for privacy and security at its core, Umbra also targets an easy to use GUI and more, with simple buttons that do exactly what they say and no more. Fortunately, the setup process was well thought through and it's very easy to connect yourself to Tor or L2P and get where you need to be going; Umbra states that they've reached an equibrilium between being too basic and being too advanced, and it's visible in their Shadow Client- there are settings for more basic functions, and there are more for advanced functions. After setup, you'll be almost completely ready to go. Some integral features included in the Shadow Client include both a message sender and a wallet with both private and public functions. The message sender is similar to Skype and Telegram in a way- you just need a few details and you're good! You can opt in for both public and private chat channels if you wish- it's great for teamwork and more, too! As with many things on Umbra, all messages are completely encrypted for your convenience and security- you can even further encypt messages if you wish with your own software and settings.

Umbra Wallet

Want to recieve money and even create entire marketplaces? ShadowCash is there! The main currency of Umbra, ShadowCash offers ring signatures and dual-key stealth addresses in order to complete both the most secure and most easy transactions you need. With similar encryption methods as Monero, your transactions will be silky smooth and completely encrypted. If you wish to send and recieve money normally, you can use their public wallet, and if you want to send private payments and recieve private payments, the private wallet is your thing. Both are included as standard with the wallet software, and the only major difference with the two is that the public wallet offers slightly better than basic privacy than bitcoin, and the private wallet offers the highest grade security you can get.

This is ideal for marketplaces and exchanges; the anonymity allows one to do whatever they want to do, and there are practically no bounds with Umbra. If you're concerned about your security and want to opt in for a more secure pathway to sending transactions without the hassles of creating and mixing coins like with Bitcoin, Umbra may just be your thing.

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Friday, September 30, 2016

UBS Reveals Blockchain Prototype for Streamlining Global Trade

 

Swiss banking giant UBS has unveiled a project designed to replicate the entire lifecycle of an international trade transaction on Hyperledger's Fabric blockchain.

Built in collaboration with IBM, the trade finance project is still in its earliest stages, but it's arguably already more ambitious than many blockchain prototypes that focus on just a single aspect of the process. Designed to "holistically" combine payment transactions, the prototype merges trade finance transactions, foreign exchange payments and more, into one single, elaborate smart contract.

According to UBS's head of product and market development for transaction banking, Beat Bannwart, the effort also involved the full range of UBS professionals who are subject matter experts in these areas.

Bannwart told CoinDesk:

"We looked at it from a transaction banking point of view, so we involved people from trade, from supply chain finance. But the aim was actually to combine all these different steps into one single solution, where the entire business flow is covered."

In large transactions, letters of credit can be used by a purchaser's bank to mitigate the sense of risk a seller experiences while the product is in transition. But letters of credit can take as long as seven days to process, according to UBS's numbers, during which time additional risks can accumulate.

To give an idea of how complicated the process is, UBS said a letter of credit can weigh 500 grams and comprise 36 documents.

By programming that process into a smart contract on Hyperledger, Bannwart said he expects to be able to cut the processing time down from seven days to one hour.

Screen Shot 2016-09-29 at 1.19.16 PM

In addition to the letter of credit process, the work revealed in a video presentation at Sibos on Wednesday is designed to also incorporate the account opening process and more.

"It is complementary," said Bannwart. "It is not replacing any procurement or negotiations parties, it is for the pure execution and monitoring afterwards, so that we save them time and you actually have fun to use it."

Rapid iteration with FinTech startups

The emphasis on fun ran throughout the presentation, which heavily focused on the project's aim to build a user-friendly interface, one that was designed to operate on the go, say for example from a transportation vehicle.

To move that design thinking forward, much of the work was completed during an intensive two-day work session at the financial technology accelerator Level 39 in London, better known for hosting startups than big banks.

During the build, representatives from UBS's IT department joined with staff from the IBM Competency Center to work through the process of moving from visualizations to actually building the product.

IBM's client executive in charge of the UBS integrated account team, Fabio Keller, described the build as a group of "extraordinary people at the same table, locked down in a room for design thinking."

Also around that table were Level 39 startups including cloud-hosted blockchain startup Credits and smart documents startup Clause Match, according to the bank's senior innovation manager, Alex Batlin.

Though he said there are currently no contractual agreements between the startups and UBS, Batlin added that the firms' participation was part of a larger UBS strategy.

He told CoinDesk:

"We made a very conscious decision, we wanted to make sure that we learn, but also mentor the startups."

Timeframe unknown

Reports of UBS's blockchain work have been percolating online since last year, including news that multiple blockchain "experiments" were underway.

Then, last month the bank emerged as a major player in the space when it was revealed it was part of a five member consortium that was working on a "utility settlement coin" designed to help central banks embrace blockchain functionality.

Going forward, it remains unclear how long it will take to complete the international trade project, according to Batlin, who helped build the team behind the effort, but who will be joining BNY Mellon this fall.

But what is more certain, according to Keller is that what happens next.

UBS plans to take the prototype to customers and end users, he said, with the hope that this will "validate" that the bank is "going in the right direction."

Lightning Test Moves Bitcoin Scaling Into Striking Distance

 

A lesser-known startup has successfully tested an important piece of bitcoin's scaling puzzle.

Widely considered to be the best way to boost bitcoin's transaction capacity, the Lightning Network proposes a way to execute the majority of bitcoin transactions without involving the blockchain or compromising the network's decentralized architecture.

But, as a relatively new proposal, it's still very much a work in progress. That's one reason why recent tests completed by a French company called Acinq have generated so much excitement.

Inspired by a white paper released by bitcoin mining firm Bitfury in July, the Acinq team launched 2,500 Amazon Web Service nodes this month as a way to test a proposed routing system for Lightning-style payments earlier this month. Conducted on 18th September, the test put the routing theory proposed in the white paper into practice.

As it showed Lightning nodes could effectively route payments, Bitfury CEO Valery Vavilov argued that the test was a significant milestone for bitcoin.

Vavilov told CoinDesk:

"This test of Flare, with small modifications made by the Acinq team, shows that our solution for payment routing on the Lightning Network is not only theoretically feasible, but successful."

For now, this puts to rest skepticism that Lightning routing was too difficult to be implemented at all, as Acinq's routing tests pushed the idea out of theory and into practice.

"We thought it would interesting to go beyond with a simulation because it showed that actual progress with routing issues and [that] we're getting closer and closer to a working implementation," Padiou said.

As the implementation assumes privacy, it also hints that the Lightning Network could succeed in keeping payments private, despite the fact that it effectively adds multiple new parties to bitcoin transactions in an effort to keep them off-chain.

Proposed by developers Joseph Poon and Thaddeus Dryja in February 2015, a number of startups (Lightning, Blockstream, Blockchain) and open-source projects are now working on implementations of the concept.

Paris-based Acinq has so far focused its efforts on its implementation Eclair, driven by what Padiou said were the benefits Lightning could bring to the bitcoin network when it is finally implemented by the open-source community.

Experimenting with tradeoffs

Named after the French word for "lightning," the Eclair implementation offers a test of Bitfury's Flare proposal, which Padiou described as the most advanced routing method developed yet, due in part to how it handles privacy.

Notably, Flare uses a hybrid approach to routing where each node has enough view of the rest of the network to be able to figure out a path to send payments. Put simply, each node only sees a portion of the larger network. Say there's a node sitting in a sea of nodes. It will have connections with all of its neighbors, but also with random nodes sitting further away.

The idea is this gives it the ability to "see" what's going on out in front of it, even if it doesn't see everything.

The Acinq team tested this concept using these connections for establishing channels and routing payments on a static route. After setting up the nodes in the cloud, the Acinq team created channels between them and tried to find routes between random nodes, Padiou explained.

In the mailing list dedicated to Lightning Network development, Padiou noted some differences between Eclair's routing approach and what Bitfury proposed in the white paper.

Acinq tried a simplified version that would take less time on average, but that had a smaller success rate of finding a path to the target. "We wanted to do was answer the question of, 'Can I find a route in less than one second?'" he explained.

Padiou reported that the test had an 80% success rate of finding a payment path in about half a second.

Next steps

So, when will users be able to use this speedy, scalable service?

The answer might not be so soon, as this is yet another step towards a Lightning Network that can actually carry payments across the network.

"We think that the dynamic ranking of the routes is the next big challenge," said Padiou, explaining that the piece that they just tested is one of two steps for Lightning routing. The first is static routing, the second is dynamic routing.

Having enough of a view of a static network to establish a channel on the network is one thing, but maintaining channels that are changing potentially every second with each new payment is another.

"This is very difficult to solve because it's moving all the time," Padiou said. "You can't be sure you'll be able to use a given channel to route a payment because maybe it's unbalanced. Or maybe a longer route is better because it's cheaper."

Yet, it is a small sign that the broader Lightning community also has plans to make all of the implementations compatible with one another, with Lightning Network designer Joseph Poon telling CoinDesk he plans to meet with the Eclair team next week so they can discuss specifications.

Going forward, the community building Lightning also needs work on encrypted communication between nodes, storing channel states, and so on. But Padiou said he plans to stay focused on routing for the time being.