Know & go
- A closer look: Ernst and Young (EY) announced that it will deploy it’s zero knowledge proof technology (dubbed Nightfall protocol) on the public Ethereum blockchain as soon as May 2019.
- Three things to know: 1) dYdX and Compound deploy latest versions of their product on the Ethereum mainnet and testnet, respectively, 2) ConsenSys is looking to raise $200 million in outside capital at a valuation of $1 billion, 3) Digital asset manager Arca filed a prospectus with the SEC seeking approval to sell tokenized shares in its fund to retail investors.
- Market snapshot: Total crypto market capitalization is around $168.6 billion at press time (up 3.8% w/w). BTC is trading at $5250 (up 4.0% w/w), ETH is at $171 (up 4.9% w/w). BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by BitMEX) is 59.4% vs. 59% on 4/12. (4/19 10:30AM ET)
Weekly market snapshot
A closer look: I spy ZKPs with EY
“The only way that blockchains deliver upon their true promise to the world is if public blockchain networks are the preferred path for enterprises and investors.” (Paul Brody, EY Global Innovation Leader)
This week, Ernst and Young (EY) announced that it will deploy it’s zero knowledge proof technology (dubbed Nightfall protocol) on the public Ethereum blockchain as soon as May 2019. EY intends to make it easy for businesses and corporate clients to protect sensitive and competitive information and also take advantage of public blockchains. EY first announced this project during Devcon in October 2018. Nightfall solutions will run on Microsoft Azure’s cloud environment and be integrated with SAP’s enterprise software. The technology will support ERC-20 and ERC-721 token standards. Potential use cases include supply chain, food tracking, public finance, and transactions between banks and bank branches.
With zero knowledge proofs (ZKPs), organizations can transact privately on the same network without giving up the security and distributed nature of the public Ethereum blockchain. From our primer on privacy coins, “ZKPs prevent anyone attempting to analyze their blockchains from making any sense out of what they’re looking at. ZKPs enable all of the benefits of public blockchains like Bitcoin without the downsides of leaving behind digital clues that can be analyzed by third parties. The result is the ability to transact with complete privacy, inscrutable to the outside world.” When used in the context of businesses, only parties that are authorized to view the transaction data – such as business partners, regulators, and auditors – will be able to see it.
EY’s open source public blockchain approach is different from the private blockchain approach most enterprises have taken thus far, where privacy is enabled through permissioning. If participation is permissioned, access to the network is restricted to participants that are selected ahead of time. The case for using such networks is that they are more private (against non-members) and more scalable (though this is changing). A key criticism against permissioned networks is that they are not censorship resistant – a single entity or group of entities has control over the network. In addition, there are multiple companies and consortiums building their own permissioned blockchains, which creates silos. Paul Brody highlights the challenges as follows, “the biggest challenge for enterprises’ blockchain adoption is the ability to on-board business partners into their private or consortium blockchain network.” Further, while sensitive data is shielded from external parties, it might still be visible to members of the permissioned network. This brings us to zero knowledge proofs.
There have been prior announcements about enterprise use of zero knowledge proofs. One example is ING Bank’s recent announcement that it is exploring the use of bulletproofs (which provide efficiency gains over ZKPs and zero knowledge range proofs*) in permissioned enterprise blockchains. Separately, JP Morgan announced earlier this year that it is exploring the use of AZTEC protocol’s zero-knowledge proof technology in conjunction with Quorum (JP Morgan’s private version of the Ethereum blockchain). AZTEC allows users to take assets that have been restricted to a private blockchain and issue and trade those assets on a public blockchain like Ethereum, while providing the same privacy and execution guarantees. This is an unusual partnership because, to date, JP Morgan has been focused on operating a gated blockchain ecosystem.
EY is also unique in its approach to the intellectual property it’s developed with this technology. Paul Brody says, “The gold standard in security is only achieved with the kind of intense review and testing that comes with public domain releases.” Not only did EY open-source the technology, it put it in the “public domain” without license, meaning it won’t be subject to copyright. However, Preston Byrne warns that this could create a lack of clarity in the event of copyright issues.
Paul Brody mentioned that “this is a million dollars worth of stuff [they’re] giving away.” Why is that? In her thread on the news, Maya Zehavi highlights that “having a ZKP based standard positions them to be the leading firm auditing the enterprise implementations for ZKPs” and allows them to create a new revenue stream.
This is a big win for the crypto community, as it is one of the first times major incumbents are betting on public blockchain technology. This initiative could help skeptics begin to see the power of public blockchain technology complemented by additional privacy enhancing cryptographic primitives.
For a thorough look into the world of zero knowledge proofs, we also recommend this Thematic Insights piece by Delphi Digital.
*Zero knowledge range proofs prove that a number lies within a certain range without revealing that number.
In other news
- Binance announced it will delist Bitcoin SV (BSV) and all of its trading pairs on April 22nd. In the announcement, the exchange stated that BSV failed to meet the “high level of standard” expected of cryptocurrency projects accepted to the Binance platform. This event may be related to the recent actions of BSV creator, Craig Wright. Wright, who claims to be the person behind the pseudonym Satoshi Nakamoto, threatened various Twitter users with legal action for disputing his claims. Source. A number of other exchanges, including ShapeShift and Kraken, also released plans to delist BSV following Binance’s announcement. Source.
- Crypto market data provider Nomics introduced its Crypto Exchange Transparency Scores in order to rate cryptocurrency exchanges on their “willingness to provide an auditable history.” This move comes in response to the numerous reports recently released that concluded the majority of crypto trading volumes is artificial. Nomics hopes to incentivize an increased level of transparency among crypto exchanges in order to attract market makers and engender trust between institutional traders, investors, and regulators. Source.
- HDR Global Trading, the parent company to crypto derivatives exchange BitMEX, has partnered with Trading Technologies (TT), a Chicago-based derivatives trading platform. In a blog post, TT stated the partnership will enable its eligible users to access all BitMEX products through the TT platform. TT already provides traders with the ability to trade the cryptocurrencies offered by Coinbase and Bitcoin futures on CME, but the addition of BitMEX offerings would now include perpetual swaps (a unique way to synthetically trade underlying crypto assets that do not have an expiry date). Source.
- Corporate Traveller, a business travel management service, has partnered with BitPay so it can start accepting bitcoin and bitcoin cash as a means of payment. The UK-based company stated it added crypto support after identifying “an increasing demand from [its] clients to pay in bitcoin.” Source.
- Major consulting firm Accenture launched a blockchain solution alongside Generali, an Italian insurance firm, that aims to improve employee benefits offerings. Accenture stated the system leverages smart contracts and automated reconciliation to streamline the complex and manual reinsurance process. The launch comes after the firms tested a prototype last year that reportedly lowered costs, saved time, and improved the data quality for all participants. Source.
- Sirin Labs, the creator and distributor of the Finney blockchain smartphone, laid off 25% of its workforce after sales of its $999 phone were not what it expected. The company, founded in 2013, raised $97 million early on before adding another $158 million in its December 2017 ICO. The SRN token issued during the ICO has lost ~99% of its value since January 2018. Source.
- Nestle and French retailer Carrefour have teamed up to let customers track the journey of instant mashed potatoes from farm to store via the IBM Food Trust blockchain. The announcement marks Nestle’s first foray into blockchain technology as a means of sharing information with customers. This new service will be tested over the next few months to understand its impact and inform the two companies on further developments. Source.
- eToroX, the blockchain subsidiary of investing platform eToro, launched a cryptocurrency exchange. The platform offers six cryptocurrencies (BTC, BCH, ETH, XRP, LTC, and DASH) as well as eight branded stablecoins, including the eToro US dollar (USDEX), eToro Japanese yen (JPYEX), and eToro Euro (EUREX). The parent company also rolled out a cryptocurrency exchange and wallet service to US customers last month. Source.
- A report by Global Custodian, The TRADE Crypto, and BitGo surveyed 150 endowments and found 94% had invested in crypto-related initiatives throughout 2018. Despite regulatory, volatility, and market infrastructure concerns, only 7% “anticipate a decrease in their allocations” over the next 12 months. Moreover, 54% invested directly into individual crypto assets, while the remaining endowments gain exposure through various funds. Source.
- Blockchain company Algorand publicly launched a testnet version of its permissionless, proof-of-stake protocol (also named “TestNet”). Prior to its public release, TestNet underwent a private trial period with several hundred participants. Algorand intends to launch its mainnet (dubbed MainNet), along with its native token, this June. The company is backed by $66 million from investors such as Union Square Ventures and Lemniscap. The protocol itself was designed by MIT professor and Turing Award winner Silvio Macali. Source.
- dYdX — a peer-to-peer margin and derivatives trading platform for cryptocurrencies — is the latest Open Finance project to revamp its current protocol. The team announced earlier this week an alpha version of its new product went live on mainnet. This second version will feature margin trading with up to 4x leverage, borrowing and lending, and a portfolio management tool. Similar to Dharma, as covered in last week’s recap, dYdX will initially only support an ETH-DAI market. Source.
- In other Open Finance news, crypto lending platform Compound deployed its updated version to the main Ethereum testnets — Rinkeby, Kovan, and Ropsten. Key new features include asset specific collateral factors, removing the need for wrapped Ether, and a subgraph (created in collaboration with The Graph) to facilitate protocol and market queries. Source.
- Blockchain analytics startup Chainalysis secured another $6 million as part of its Series B from MUFG and Sozo Ventures. The company raised $30 million at the start of the round back in February. Chainalysis now has plans to expand into Japan, which has a growing interest to make its “crypto-related ecosystem as robust as possible.” According to a recent report from Reuters, Chainalysis has increased contracted incomes by 16 times within the last year. Source.
- Crypto exchange Gate.io raised $64 million worth of crypto assets in a 7 day token sale. These Gate Tokens (GT) will act as the native cryptocurrency for Gate.io’s proprietary blockchain, which is not expected to go live until Q4. In the meantime, investors received Gate Points that can be used to offset trading fees and entitles holders to GTs once available at a 1:2.5 ratio. The exchange also said it has plans to launch its own Initial Exchange Offering (IEO) platform, similar to Binance’s Launchpad. Source.
- BOLT Labs, a software startup building anonymous crypto payment channel networks, raised $1.5 million in seed funding. The round was led by Dekrypt Capital and included investments from the ZCash Foundation, Ripple’s Xpring, and Lemniscap. The company will look integrate its scaling solution with the ZCash network as well as other similar solutions, such as the Lightning Network. Source.
- ConsenSys is looking to raise $200 million in outside capital at a valuation of $1 billion. The Ethereum-focused company was previously funded by founder Joe Lubin’s personal crypto fortune, but the depreciation of crypto prices and lack of revenue led ConsenSys to lay off 13% of its workforce last November. According to one report, ConsenSys “brought in just $21 million in revenue in 2018.” Now, the company is attempting to pivot towards a more sustainable business model with a target of $50 million in revenue this year. Source.
- 20|30, a blockchain startup looking to tokenize equity, raised $3.9 million in a sale of its own tokenized shares. The effort utilized distributed ledger technology created by Nivaura and was carried out in a test environment on the London Stock Exchange Group (LSEG)’s Turquoise equity trading platform. Source.
- Crypto wallet startup ZenGo raised $4 million in a seed round from investors including Benson Oak Ventures, Samsung, and Elron. The startup aims to make sending crypto as easy as sending a message by removing the need to manage private keys. ZenGo leverages its own system, called threshold signatures — similar to multisig, and Apple’s FaceID feature to abstract the signing process from the user. Source.
Global regulatory roundup
- France is pushing the European Union to adopt a regulator framework on digital assets that resembles the rules approved by the French parliament last week.The new financial laws established in France focus on verifying cryptocurrency issuers and trading firms as well as taxing crypto profits. The French government hopes the prospect of a more regulated crypto market will entice crypto-related companies to set-up in France. Source.
- Digital asset manager Arca filed a prospectus with the U.S. SEC seeking approval to sell tokenized shares in its fund to retail investors. The fund itself is anticipated to invest 80% of assets into U.S. Treasury securities, “with the rest in debt issued by various” entities. Arca is billing its tokenized shares, referred to as Arca UST Coins, as stablecoins, albeit “less stable than other such products on the market.” Arca UST Coins are designed to be available to the public, but not to be traded on any stock exchange or directly transferred to another investor without prior verification. Source.
- Chainalysis filed a public comment opposing a regulatory recommendation proposed by the Financial Action Task Force (FATF), an intergovernmental organization that sets policy to combat money laundering and other related threats. The blockchain analytics company said increasing customer information sharing, as suggested by FATF, would drive activity away from regulated exchanges and decrease the level of transparency currently available. If approved, FATF’s recommendations would go into effect in June 2019. Source.
- Last week, twenty-one Members of Congress sent a bipartisan letter to the IRS urging the tax authority to provide more “robust guidance” around accounting and tax handling of cryptocurrency. Source.
What we’re reading
- How to scale Bitcoin (without changing a thing) by Nic Carter
- Beating the Market by Meltem Demirors
- Incremental Decentralization by Eric Chung
- Economists Are Missing a Trick with Crypto by Quinn DuPont
- Delphi Digital Gaming Thematic Insights
- Breaking Down Crypto Mining by Kraken team
- A few thoughts on what bitcoins are by Joe Kendzicky
- Coming Soon: The Biggest Crypto On-Ramps Ever by Spencer Bogart
What we’re listening to
- The Token Daily: Jing Wang, Executive Director of Plasma Group: Plasma and the Future of Ethereum 2.0
- Off the Chain: Adam Draper, Co-Founder of Boost VC: Why Investing in Weird Things Leads to Great Returns
- What Bitcoin Did: Lightning & the Law with Peter Van Valkenburgh
- What Grinds My Gears: Beating the Market
- Unchained: Why Beam Thinks Businesses Will Use Its Cryptocurrency
- Unconfirmed: Coinbase Custody: Keep Your Crypto Safe and Use It Too
- Chain Reaction Podcast: CoinList’s Andy Bromberg: The Future of Community-Building in the Crypto Space
- Epicenter: The Graph – A Marketplace for Web3 Data Indexes Based on GraphQL
- Venture Coinist: BitMEX CEO Arthur Hayes on BitMEX Future, Trader Topics, and Bitcoin Longterm Outlook
- Base Layer Podcast: Jeremy Welch (Founder, Casa)
- Crypto & Grill: Crypto Regulation w. SEC Commissioner Hester Peirce
- Blockchain Insider: No such thing as a private blockchain
- Into the Ether: FOAM: The Future of Proof of Location with Ryan John King
Circle in the news
- Jeremy Allaire, Circle’s CEO, was featured in a WSJ article on the potential impact blockchain technology will have on traditional financial infrastructure and processes. Source.
- On Wednesday, Circle released the latest attestation report on the USD reserves backing USDC issued by an independent accounting firm. Source.
Where we’ll be in April
- Blockchain Expo Global 2019, London, 4/25
- Fifth Annual Blockchain, Digital Currency and ICO National Institute, New York, 4/27