Category Archives: Crypto

CryptoCrime Report (2020)

Source: Chainalysis, Jan 2020

Ponzi schemes are driven by collecting relatively large payouts from a high number of users. Over 2.4 million individual transfers were made to Ponzi schemes, a number that becomes even more incredible when you realize that the data above reflects just six individual Ponzi schemes in 2019. It’s also worth noting that the 2.4 million figure is based on an ongoing investigation into 2019’s most prominent scams — some media reports indicate that the PlusToken scam alone, which makes up the majority of Ponzi scheme revenue on this graph, reached 3 million victims on its own.

The average transfer to Ponzi schemes was $1,676 worth of cryptocurrency, second only to the $4,188 taken in the average transfer to fake token sales. These numbers make sense based on what we know about Ponzi schemes. Scammers promise massive, outsized returns for those who invest in their fake companies, convincing victims to invest substantial sums in the hopes of a big payout.

Scammers typically promote themselves aggressively on social media and elsewhere, going so far as to build sophisticated websites and run aggressive
marketing campaigns to attract investors.

Related Resource: Bitcoin Magazine, Aug 2019

On June 27, 2019, a handful of leaders for a wildly popular ponzi scheme that spread across Asia were arrested by Chinese authorities after they managed to fleece unwitting customers out of roughly $3 billion.

PlusToken defrauded an estimated 3 million people, according to PlusToken’s advertised user base (Blockchain analytics firm CipherTrace believes this number could even be as high as 4 million)


Goldman Sachs: BTC is not an Asset Class

Source: Twitter, May 2020

Related Resources: Twitter, May 2020

Bitcoin’s gains come primarily in its 10 best days of the year

Source: DailyHodl, May 2020

Tom Lee of the research firm Fundstrat says most of Bitcoin’s gains come in the cryptocurrency’s 10 best days of the year, which highlights the difficulty in timing the BTC market.

“Before everyone starts freaking out whether crypto winter is over, remember the Fundstrat ‘rule of 10 best days.’ [Minus Bitcoin’s] 10 best days, BTC is down 25% per year. All the gains come in 10 days. Are you that good at trading?”

True Bitcoin Killer Requires an Entirely New Consensus Mechanism …

Source: Medium, Mar 2020

A true “Bitcoin killer” would necessitate an entirely new consensus mechanism and distribution model; with an implementation overseen by an unprecedentedly organized group of human beings: nothing to date has been conceived that could even come close to satisfying these requirements.

In the same way that there has only ever been one analog gold, there is likely to only ever be one digital gold.

For the same quantifiable reasons a zero-based numeral system became a dominant mathematical protocol, and capitalism outcompetes socialism, the absolute scarcity of Bitcoin’s supply will continue outcompeting all other monetary protocols in its path to global dominance.


Though essential to mathematics, ZERO is but a minute part of mathematics.

Global Bitcoin Users : 25 million (2020)

Source: Bitcoin Market Journal, Feb 2020

Bitcoin Users At a Glance

  • Over 42 million bitcoin wallets had been set up globally by Dec 2019
  • An estimated five percent of Americans hold bitcoin
  • There are 7.1 million active bitcoin users
  • Leading exchange Coinbase has over 13 million users
  • Emerging markets users, who are often not considered in statistics, are likely in the millions

How Many People Use Bitcoin? 

In light of the limited data and the impossibility of accurately determining the number of bitcoin users around the world, we can safely estimate that there will be around 25 million users globally.

This figure can be derived by assuming that out of the 42 million bitcoin wallet addresses on the blockchain, several are no longer in use and that many users occupy several wallets.

On the other hand, we can also assume that the number of bitcoin users outside of the 32 countries that Coinbase services will be several million – especially since major bitcoin economies in Asia are not included. Hence, around 25 million bitcoin users globally can be considered a fair estimate.


Sources of BTC failures: Legal & Technical Attacks upon BTC

Source: BreakerMag, Apr 2019

What were your main arguments of your talk at the Enigma conference?

First of all, the cryptocurrencies don’t actually work as currency. That’s the big deal. They’re hard to buy because they are deliberately incompatible with the rest of the financial system. They’re incredibly hard to hold on to because, well, something goes wrong it’s “Sorry for your loss.” That’s a function of the irreversible design.

provably inferior to alternative payment mechanisms, with one exception: They do have censorship resistance. So if you want to be a currency of crime, cryptocurrency is the only online choice. And as a result, cryptocurrencies have these huge externalities. What has happened is they’re useful for extortion and stuff like that. The mining for “proof-of-waste” is such that it’s about the same amount of power draw as Singapore, and in a way that actually disfavors renewables. So the externalities are huge, and the benefits are effectively nonexistent.

Let’s split out the term blockchain into two separate things. You’ve got the private blockchains, which are an append-only data structure. We’ve known how to build these for 20 years. And if indeed your problem can be solved by putting it an append-only data structure, it should already be in the git-archive or certificate-transparency chain or all these other data-structure devices that we know how to do.

The public, or permission-less, ones—the ones behind the cryptocurrency—they’re interesting from a research viewpoint, but they aren’t actually useful for anything other than the cryptocurrencies themselves.

Tether is an 18th century wildcat bank. They’re issuing their own bank notes.

Why are smart contracts a disaster?
First of all, there’s the concept: Let’s replace standard contracts written in a language we call legalese with something written in a language that’s worse than JavaScript, and in the process remove the exception-handling mechanism. If you can go up to a smart contract and say, “Hey, give me all your money” and it goes, “Okey-doke,” is that even theft? That’s within the text of the smart contract.

The reality is, these are basically just finance bots: programs that operate on money. Our financial system has run on finance bots for decades now. The only difference is the smart contract finance bots are public. And that means that anybody can interact with them and exploit them. The only real utilities people have written with them are effectively Ponzi schemes and a framework for these unlicensed stock offerings.

There are two things that I think can really cause the cryptocurrency market to totally fail.

First is actual legal enforcement, particularly around Tether. The conclusion is these days 95 percent of [trading volume on] the exchanges [is] effectively fraudulent. These are all the same exchanges that are already cut off from the banking system and use Tether. [If] Tether is [found to be] a criminal enterprise, and the feds arrested those behind Tether and gave Tether the Liberty Reserve treatment, it would effectively collapse all the exchanges.

What’s the second way?
The second is a technical death spiral situation. The problem with bitcoin mining is it’s wasting a lot of energy, and it will always waste a lot of energy as long as the price is high.

If the price drops, however, there may be scenarios where we have a large amount of mining equipment that ends up getting turned off. That equipment is not profitable to run 24/7/365 to mint cryptocurrency, but would be profitable to synchronize and turn on for a few hours in order to attack the security of the system.

The problem with cryptocurrency is it’s basically a Venn diagram: those who don’t understand economics intersected with those who don’t really understand computer security. The cryptocurrency defenders tend to attack economists with “Oh, you don’t understand the technology.” And Roubini is really willing to push back against those arguments, because, well, those arguments are irrelevant. The problems with the cryptocurrencies are really economic, not technical.

Initially I thought bitcoin was a clever hack. And I still think it’s kind of a clever hack, but it’s a clever hack without redeeming value at this point. And the problems are economic.

He’s being contrarian because he sees something that he believes has been a large net negative, and that’s going to end badly for a lot of people. I can’t speak for him, but I don’t like that. That’s why I’ve gotten much more vocal in my contrariness. I see a lot of people are going to lose, or have already lost, a lot of money.

A Skeptic’s Perspective of BTC and Blockchain

Source: BreakerMag, Sep 2018

in these unregulated markets are a huge preponderance of scams. Because what these people want is the freedom to scam other people.

a lot of people have a vested interest in the price of bitcoin going up. Their goal, really, is to get new people to buy in, whatever it is they say. And then they themselves sell out.

It’s very hard to take a lot of what they say at face value.

Especially since one of the unregulated aspects of this is that journalists who write about bitcoin and blockchain are so much more likely to have a direct interest in those securities, unlike in the financial press where that is for the most part pretty heavily restricted.

That promotion of ignorance to me is one of the main effects of blockchain. Believe this hype, don’t believe anyone who says anything to the contrary. And that often comes with a fair amount of viciousness and anger.

One of the places we see this is that most of the projects that people can point to as being successful, such as IBM and its Hyperledger project, aren’t really blockchain in the sense we understand it. Those are not out on the public blockchain, they don’t use bitcoin, they don’t use Ethereum. They are basically distributed databases in which the number of nodes is controlled by the central entity. They’re not decentralized, and they’re not open-access.

So saying that that is the same thing as blockchain, and therefore blockchain is succeeding, is really hand-waving in a very dangerous way. That is saying, don’t actually think about this, don’t actually look carefully at it.

As for the true blockchain, Ethereum and the bitcoin blockchain and the other minor ones, I think that enough time has gone by that we have seen that they really are not going to be useful for anything, in part because of some pretty problematic assumptions that are made in the underlying infrastructure.

What sort of assumptions?

Specifically, there’s the idea that if you call something decentralized, resources will be evenly spread out among all the participants, which is just plain false. So you keep getting these highly concentrated nodes of power that depend on buying a lot of equipment and having a lot of access to electricity and so forth. And I think that’s the basic problem in all libertarian philosophies.

Nearly $5B in Tethers Minted Since Jan 2020

Source: DeCrypt, May 2020

Tether, the world’s most popular stablecoin, has been pumping up the volume. Since January, $4.7 billion Tethers have been ushered into the Bitcoin ecosystem. Now, there are nearly $9 billion Tethers in circulation.

One Bitcoin skeptic sees it as an ominous sign that real dollars in the crypto ecosystem—the network of exchanges, over-the-counter trading desks, and other ways people trade crypto—are starting to disappear, steadily sucked out by Bitcoin miners who need them to pay their monstrous electricity bills.

Miners “have to sell BTC for real money,” Nicholas Weaver, a researcher at the International Computer Science Institute in Berkeley, told Decrypt. “Tether is a fine substitute for real money for those playing at the rigged stock market simulation, but it can’t substitute for paying power bills.”

He also frequently tweets his critiques of BTC. “The problem is miners need $ not Tether to pay power bills, so over the past few months there has been a great sucking as Tether has replaced $,” he tweeted recently. “When $ goes to 0, the system collapses.”

By collapse, he means that the price of BTC drops to the point where “51% attacks become so cheap that Bitcoin ceases to be usable.”

Tether, for the uninitiated, is a virtual token pegged to the US dollar. Exchanges, typically those that lack links to traditional banking, use it in lieu of real dollars as a way to bring liquidity to the crypto markets and hedge against volatility.

A few things—well, more than a few—make Tether controversial. One is that it is controlled by Bitfinex, a popular cryptocurrency exchange that operates out of Asia.

But the main sticking point is Tether’s claim that Tethers (USDT) are backed 1:1 to the dollar. Nobody knows for sure what’s behind Tethers. Nobody has ever come forward saying they’ve been able to redeem Tethers, which were supposed to be an I.O.U. for real dollars. (That was the original deal, at least. Send them dollars and they would send you Tethers; return the Tethers and you’d get back your dollars.)

Over time, the rules of the game changed. In April 2019, Bitfinex’s general counsel Stuart Hoegner admitted in court documents that Tether was only 74% backed by “cash and cash equivalents,” lending credence to the theory that Tethers are increasingly being minted out of thin air. (Bitfinex is being investigated by the office of the New York Attorney General.) He made that claim when there was only $2.8 billion worth of Tether in circulation.

Arguably, one of the most important numbers in crypto is how much actual-dollar cash is floating around in the system. That number is equally as important as the number of Tethers. Both provide liquidity, making it easy to buy and sell BTC. Both help to set the price of Bitcoin. But only actual dollars can pay the costs of running the network.

Of course, the number is almost impossible to ascertain.

We can, however, get a sense of Bitcoin’s cash situation by considering what we do know.

We know how much new Bitcoin is entering the supply, based on the block reward. We know that the price of Bitcoin is determined by the total number of dollars in the system, which is a mix of both cash and Tethers.

And we know that Tether is issuing its virtual dollars at a clip of $33 million per day over the last five months—a strong indicator that the level of actual cash in the system is in a perilous decline, according to Weaver.

Just how much cash is disappearing from the system in energy costs? According to an estimate published by researchers at the University of Cambridge, the Bitcoin network consumes more electricity than a small country—what Weaver calls “obscene.”

Based on 5 cents per kWh, the Bitcoin network needs to spend roughly $335,000 every hour, Alex de Vries, a blockchain specialist at Big Four accounting firm PwC, told Decrypt. That means someone has to be on hand to buy nearly $8 million worth of new Bitcoin a day for cash—just to secure the system.

Those costs are putting the squeeze on miners right now.

They earn 6.25 BTC every 10 minutes in block rewards. At $9,000 per BTC, that equates to $340,000 an hour. At the moment, they have to sell every BTC they mine to pay electricity costs. (Previous to the halving event on May 12, it was 12.5 BTC, so they were earning more.) The average costs will drop to 2 to 3 cents per kWh between May and September, de Vrie said. That’s because over 50% of Bitcoin mining is centered in the Sichuan province of China, which benefits from lower costs of hydropower energy in the wet season.

Electricity isn’t the only cost miners have to bear. They have to pay for their rigs, which can run up to $3,000 apiece and need to be replaced frequently as faster ASIC machines become available. They also have to pay rent, taxes, wages, and all the other costs of running a business. All of these things need to be paid in real dollars or yuan, not Tethers, resulting in a steady net drain of cash out of the ecosystem.

Weaver argues that even if the miners hold on to their new BTC, as opposed to selling them right away, that still draws cash out of the system. Because it lowers the supply of available BTC on the markets and raises the price of the BTC that they do sell.

“Supply and demand must match to determine the price. If the supply is less, the price would go up,” he said.

But aren’t there enough whales (large holders of Bitcoin) out there to ensure that there’s no actual shortage of Bitcoins?

After all, they can control the supply, and make it whatever they want.

“True, but you’d see the whales move,” said Weaver. “Any whale shouldn’t keep their currency on exchanges because, well, that is suicidally stupid.” He added: “Whale sales don’t affect the stock of dollars. Dollars go in, dollars go out.”

It’s all Tether now

In 2017—the last Bitcoin bubble—everyone and their uncle’s college-age offspring were buying cryptocurrency. A lot of cash was flowing into the Bitcoin ecosystem. That wasn’t the only thing pushing up the price of Bitcoin, which by December of that year hit an all-time peak of nearly $20,000.

The bull run was also fueled by Tether, according to a June 2018 report by two researchers at the University of Texas in Austin. (One of whom, John Griffin, is now being funded by the Department of Justice to research Tether via his company Integra FEC. Here is the contract.) Roughly $1.4 billion worth of Tether was issued in 2017.

“Tether grossly inflated the bubble, but there was still a net inflow of dollars into the system,” Weaver said. “Although the bubble was huge, there were people actually buying Bitcoin.”

This latest price spike (Bitcoin’s price has gone up 36% since the start of the year) is different. Now he said, “It’s all Tether.

The question is, who is buying Bitcoin now? Where is all the cash coming from that the system desperately needs?

“I have no clue, and that is why I think it is near collapse,” said Weaver. “Actual money is flowing out at an amazing rate, being supplanted by Tether. And, of course, as Bitcoin is only secure when it is expensive, a collapse should hopefully end this stupidity forever.”

BTC – a US$10 trillion asset class?

Source: U.Today, May 2020

global macro investor Raoul Pal claims that the Bitcoin price could hit $1 mln in the next five years.

He believes that BTC represents the future of the financial system.

While describing his rationale for such a seemingly implausible prediction, Pal mentions that gold already boasts a market cap of about $15 trln. Hence, it wouldn’t be crazy for Bitcoin to reach a $10 trln market capitalization.


China Focuses upon Blockchain

Source: Coindesk, Apr 2020

The National Development and Reform Commission (NDRC) told reporters Monday blockchain will join other emerging technologies such as cloud computing, artificial intelligence (AI) and the internet of things (IoT) in underpinning the systems China uses to manage the flow of information in the coming years.