Stablecoins are on the rise, and they are filling a void for the burgeoning tokenized economy. A void created by unintended consequences of the cryptocurrency success story; they incentivize trading and investing at the expense of use as a medium of exchange. A common conundrum faced by crypto owners who believe that a price surge is around the corner is – do I hold, or do I spend? The crypto movement has created an active community of holders. As the community feverishly works to resolve the scaling problem and bring transaction volume closer to par with Visa, we are still left with tokens that some are reluctant to use as a medium of exchange. While this may be temporary – as decentralized cryptocurrencies evolve, it certainly poses a challenge for projects that rely upon a stable value token to facilitate transactions today. Stablecoins offer a solution that promises to enable some projects in the tokenized economy to gain traction. These centralized solutions, however, are not without quirks that may render them undesirable under certain circumstances. A stablecoin is essentially a token, such as bitcoin, on a blockchain – but one that is pegged to a state-issued currency such as the U.S. Dollar, where one token equals one dollar. This stable value token can be purchased with fiat currency or cryptocurrency. It can be redeemed at any time for the underlying currency on which it is based. You can think of stablecoin as the tokenization of fiat currency, a digital proxy for cash, or a cash-collateralized token. Tokens offer several benefits over the underlying currency. To name a few: as a proxy for fiat currency – they can be as reliable as the dollar, they are not vulnerable to counterfeit like paper money, they can be used in smart contracts to transfer value without
Sextortion, ransomware, money laundering, tax evasion, terrorism, fraud; just a few crimes getting a boost from cryptocurrency. Is your organization affected? Are you ready to fight blockchain crime? Yesterday’s toolkit is not going to cut it in the cryptoverse; it’s time to consider what your needs are and tool up. According to the Association of Certified Fraud Examiners 2018 Report To The Nations, fraud can take 5 to 24 months to be detected. When we factor in vectors that are not being monitored – such as blockchain – the exposure can persist for much longer periods. It may take a while before some organizations realize that they have been affected by blockchain crime. When criminals commit offences related to blockchains, they appropriate tokens of value stored in the blockchain by stealth, by force, or in collusion – to their benefit, and to the detriment of their victims. In my previous post “Following The Money In The Age Of Blockchain“, I explained how – through blockchain forks – a victim could remain oblivious to being victimized through sheer ignorance. Other transactions involve the movement of value tokens from one party to another to facilitate illicit transactions. The emerging threat of blockchain crime warrants attention. Perceived anonymity has emboldened criminals to demand money in bitcoin to unlock computer files, or destroy purported webcam videos of victims in compromising states (fabricated threats given an air of legitimacy by providing the victim with a compromised password used by the victim and sold on the dark web). These are the obvious attacks, and they should be reported to law enforcement. The reports should include the bitcoin address to which the criminal requested to have funds sent. Even if your local law enforcement is not equipped today to do anything with these addresses, it is worth
Yesterday, the suggestion that it might be possible to slash the cost of home ownership by 90%, while creating trillions of dollars in global wealth-building opportunities, and inviting millions of unbanked in developing nations to participate – might have been received as a lofty altruistic figment with no chance of materializing. But that was yesterday. Peer through the lens of tomorrow, and observe how tokenization stands to drastically alter the landscape, and pave roads to new possibilities. Tokenization is the process of assigning a digital proxy for real-world assets. For example, 700 Million digital tokens can be generated to represent fractional ownership of the $700 Million Mona Lisa painting. At $1 per token, just about anyone would be able to invest in a fraction of the Mona Lisa smile. I believe that this burgeoning innovation has enormous potential. Let us consider its application on real estate, in a thought experiment using the city of Toronto. Jack owned a two bedroom bungalow in Toronto which was last appraised at $1 Million. The land – at $900,000 – was substantially more valuable than the $100,000 dwelling building. Jack decided to tokenize his property, which had an outstanding loan of $400,000. In this thought experiment, we make the assumptions that land and building ownership can be separated, and that legal and regulatory frameworks exists for the tokenization of real estate. Jack engaged a security token and custody service to convert the title of his land (excluding the building) into 900,000 digital security tokens – all of which were assigned to Jack. The 900,000 security tokens, which represented 100% of the land, were initially valued at $900,000 or $1 per token. These tokens were stored securely with the custodial service. To unlock the value in his land, Jack logged into his account with the custodial service –
“If you control the keys, it’s your bitcoin. If you don’t control the keys it’s not your bitcoin. Your keys – your bitcoin. Not your keys – not your bitcoin.” Tech entrepreneur and Bitcoin advocate Andreas Antonopoulos uttered these words to impress upon bitcoin users the serious consequences of a poor encryption key management plan. There are a growing number of services within the Bitcoin ecospace which offer – by default – online wallets that allow users to conveniently store their bitcoins and access the funds from anywhere at any time. Millions of individual investors around the globe store bitcoin online, in wallets provided by their cryptocurrency exchange, for example. Institutional investors are being wooed with offerings of custodial services that promise to ease the burden of holding bitcoin, and making it more attractive to use the cryptocurrency. Some crypto users may find the price of these conveniences to be more than they are willing to pay – given that the tradeoff is complete surrender of the encryption keys that control the bitcoin. On the Bitcoin network, ownership of bitcoin is conferred to the person who controls the key. Who owns your bitcoin? Since a significant amount of control is relinquished to the custodian of your key, any decision to hand over such control should be given consideration that reflects the gravity of the arrangement. While Bitcoin provides the ability for owners of the cryptocurrency to maintain complete control over their digital currency, there are times when handing the keys over to a trusted third party may be practical. An institutional investor may feel that they do not have the expertise or infrastructure for managing large amounts of bitcoin. An individual investor, may feel that the amount of their investment is negligible – or that they need to secure their bitcoin
In the age of blockchain, funds associated with death, divorce, taxes, and fraud are susceptible to the perils of forks in Bitcoin’s blockchain, in ways that can allow foul play to go undetected. Blockchain forks have opened up new avenues for money to be hidden in plain sight. But what is a blockchain fork?A blockchain fork is created when a cryptocurrency protocol is altered, and miners decide to maintain both the old and the new protocol. Both chains share legacy data, but at the time of the fork (when the new protocol is adopted), the network splits into the old protocol (A), and the new protocol (B). The letter “Y” provides a good visual of how a fork behaves. Blockchains create tokens which are ascribed names such as “bitcoin”; when there is a fork, a new name is ascribed to the new token such as “Bitcoin Cash”. The code or protocol, defines the difference between the two cryptocurrencies. In the case of Bitcoin Cash, a segment of the community proposed a solution for addressing Bitcoin’s scale problem, which the majority did not buy into. This resulted in the creation of Bitcoin Cash – a cryptocurrency that increased transaction throughput in a controversial way; by increasing block size. Cryptocurrency protocols continually undergo code improvements, and in most cases the majority of miners agree to adopt the new code and the blockchain continues its linear progression. When a cryptocurrency blockchain forks, things get interesting. Anyone who owned a bitcoin or a fraction of a bitcoin at the time of the fork, is automatically entitled to an equal number of the new cryptocurrency. The owner of 1 bitcoin at the time of the Bitcoin Cash fork – now owns 1 bitcoin and 1 Bitcoin Cash. This is often referred to as an airdrop