Many people are buying Bitcoin and other cryptocurrency these days to protect their money from the ravages of an economy on its knees. Bitcoin is looking good as a safe harbor to wait out the volatility of the recession the world is undergoing right now.Â
And with the value of it rising to record heights, it seems like a good time to be buying in and making a profit in addition to keeping the money you have worked hard for from evaporating. With inflation poised to rear its ugly head, it is a very attractive proposition.
However, there is an issue of having your Bitcoin stolen from you if you aren’t careful. There are a lot of shady characters preying on people that don’t understand how cryptocurrency works. In this article, I will go over some common scams so you don’t fall for them yourself.Â
Fake exchanges
There are a lot of exchanges that are perfectly safe and are the easiest way to buy Bitcoin so you can trade with peace of mind. However, there are a number of shady exchanges that are not exchanges at all.Â
There are websites made to look as though they are an authentic exchange only to take your Bitcoin and disappear into the night. Once your Bitcojn are gone there is no getting them back.Â
Make sure to only use trusted exchanges to avoid this. Even aside from the scam ones, you should be looking into ones that have good encryption to keep your transactions safe from hackers.Â
Pump and dump
This scam is very widespread but may not exactly come under the exact definition of a scam since nobody is actually stealing your Bitcoin.
The process of doing a dump and pump is when a group of people buy up a coin when it is very cheap. Then they promote it as the next big thing all over social media and hope that it gets picked up by mainstream channels. The hype surrounding it will make people want to buy in before it hits its highest value. Then, once it has doubled, tripled or even more in value, they sell their coins off and then create a negative hype in which they crash the value of the coin.Â
Don’t trade using your emotions and always avoid FOMO (Fear Of Missing Out). Read as much as you can if something looks too good to be true.Â
Fake cryptocurrency
There are always new coins coming into existence that get investors eager to buy while the value is low. The problem here is that some new coins exist only on paper or they are actually on the blockchain but there is nothing supporting them.
Fake startups ask people to buy in the ICO and then instead of investing the money into building out the platform, they pocket the money and disappear. Be very diligent with new coins and always read the white paper carefully.
*This article has been contributed on behalf of Paxful. However, the information provided herein is not and is not intended to be, investment, financial, or other advice.
Bitcoin mining is the process of creating new bitcoins by solving a computational puzzle with computational power. Solving the mathematical algorithm is necessary to confirm a block (of transactions) which is how you are then rewarded with newly created bitcoin.
It is just like solving complex puzzles. Constant mining of Bitcoin is essential to maintain the blockchain ledger which records transactions of blockchain. It basically acts as a wallet to the Bitcoin or any cryptocurrencies you collect. With the increasing demand for Bitcoins in the modern era, the demand for higher efficient mining computer operations has also increased.
Mining Bitcoin is the process that produces a Bitcoin or token. It processes functions with computer software along with an enhanced configuration of the computer.
Mining cryptocurrencies is basically a race of people competing non-stop. Trading crypto comes with factors like buying the best, latest, and one of the most powerful hardware. This is just to maximize the return and increase the feasibility. Whether it is Bitcoin or any other crypto coin, the better the hardware. the higher the overall computational efficiency.
Pool mining forms when many miners come together. If you are not operating a mining farm with dozens if not hundreds of computing machines, but only have one or two, you would be better off joining a mining pool so that you can earn a more predictable return (your earnings are in proportion to the percentage of computing power your equipment is adding to the overall pool.)
Because bitcoin has so much overall computing (hashing) power, you are literally trying to earn money competing against millionaires who are spending as much to mine bitcoin. Also, the equipment you would need to earn a decent return on your costs would be upwards of USD $1000+ each.
How Does Bitcoin Mining Work?
Whenever you create a block, you get a block reward of 12.5 Bitcoins. The bitcoin is also mined through solving mathematical problems. These problems are called hash puzzles. To mine a bitcoin, either you need a GPU (graphics processing units) or an ASIC (application-specific integrated circuit) to process the mining process. And in case, any bitcoin user uses the same bitcoin twice, its called “Double Spending” which is ethically wrong to do.Â
Storing the mined Bitcoins
The tradition of storing Bitcoins has evolved largely since the time it first came into existence. There are two ways to store bitcoins.
Cold storage is a system where you store the bitcoin address offline or without the need of the internet.
This method is referred to be the safest among all as it is virtually impossible to hack and can be stolen only physically.
Example: Paper wallet, hardware wallet.
Hot storage is a system where the wallets will require access to the internet to run.
Hot storage is used widely all over the globe as it’s proven to be the slickest method. But it has got its loopholes too like security vulnerability, network issues, viruses.
Cloud mining
Humanity always finds a way to upgrade the way things perform. Similarly, Cloud mining is a similar example of that upgrade. In cloud mining, the need to install hardware or any mining-related software is directly eliminated. The cloud is rented by the miner which uses computing power and cuts down hassle through the entire traditional process.
Cloud mining is extensively suggested by many in the industry. There are companies with huge mining farms and you can rent computing power from them. This is wise as like others said mining on your own equipment is not profitable anymore compared to cloud mining.
Cloud miners typically use the computer of a company that owns a bitcoin mining hardware and runs it on a large scale. You pay the company rent for some part of the hardware. Based on the amount of hash power you pay for, you will earn a share of payments from the cloud mining company for any revenue generated by the hash power you purchased. Most cloud mining companies make more profits from renting out hardware or mining on behalf of an individual.
For avid traders, mining is the best and easiest way to earn bitcoins. It is easy and interesting because anyone can do it at home or anywhere you like.
However, Bitcoin mining is not free. You have to be sophisticated well enough to reap more than you sow. For hasty miners, crypto-mining is increasingly less profitable and brings more expenses and inconvenience than digital money because of its excessive electricity consumption and excessive cost to mine.
The risk involved in Cloud Mining
Many do not find risking money and energy on mining as a friendly scenario. They save up their money and buy Bitcoin when they hit their lowest.
Almost all cloud mining operations use investor’s money to pay previous investors. If you want to mine bitcoin, buy your own equipment and run it yourself or send it to a hosting company. A key indicator to tell if a cloud mining operation is legitimate: Can you direct your mining power to a pool of your choice, where you can see the mining happen and receive bitcoins directly? If you only receive bitcoins from the cloud mining operation, chances are there is no actual mining going on.
It’s very difficult to know which websites for cloud mining are legit or not and who knows they could shut down their website. We would suggest you buy bitcoin, or any other crypto you are interested in, through an exchange or bitcoin selling websites like Coinbase, Paxful or Localbitcoins, and keep them safe in your wallet till their prices go up. And if you really want to mine, you can find a miner to do it for you after extensive research.
What about mined Bitcoins?
Growth of Bitcoins cannot be stopped. As long as people have transactions, Bitcoin will continue to grow. When a large number of bitcoins will be mined, it will impact the market by cutting bitcoin’s value to halve every four years. However, it will take a century or more for such a day to occur. So you can now mine bitcoin without worrying about its future value.Â
What are digital assets? Digital assets, or cryptographic assets, are tradable and digital representations of value that rely on decentralized consensus mechanisms for settlement.
According to the Basel Committee on Banking Supervision, the three distinguishing factors of cryptocurrencies are their digital nature; their use of cryptographic primitives, such as hash functions to verify the integrity of the data and symmetric encryption to create public and private keys; and decentralized record keeping and decision making.
Although there are over 7,000 cryptocurrencies listed on Coinmarketcap.com, not all of them serve the same purpose. Some are volatile digital currencies, such as Bitcoin, others are stablecoins that are pegged to the dollar, such as Tether. Generally, crypto assets fall into three categories including fungible digital currency, non-fungible tokens, and security tokens. Cryptocurrencies, stablecoins, and Central Bank Digital Currencies (CBDCs) are all forms of digital currency. Digital currency can also include online bank deposits issued to customers by banks, such as UBS or Deutsche Bank. The possession of digital currency often creates a legal claim against the electronic money issuer. However, this is not often the case with cryptocurrencies. In addition to fungible digital currency, non-fungible tokens can be used to represent unique assets, such as the Mona Lisa painting. Finally, security tokens often represent investment contracts, and they are regulated by securities laws.
Source: Cointelegraph Research
In addition to stablecoins pegged to fiat currencies, another class of tokens is gaining traction, whereby each token represents a commodity. For example, CACHE is a provider of regulated, transparent and redeemable tokens backed by gold stored in accredited vaults around the world. CACHE uses GramChain, a revolutionary new Proof of Reserve system, that enables the public to view photographs and see real-time status updates for each bar in each vault. CACHE provides fast, flexible redemption at scale with the option to sell the underlying gold for fiat currency. Based in Singapore, CACHE’s partners include vaults and gold dealers such as Brink’s, Dillon Gage, Loomis, Silver Bullion, and The Safe House as well as custody provider Onchain Custodian and digital asset exchange Bithumb Global.
The CACHE team draws on decades of experience in the precious metals and vaulting industry as well as legal, compliance, blockchain and cryptocurrency expertise. Each CACHE Gold token is backed by one gram of pure, investment-grade physical gold. CACHE Gold tokens can be redeemed for physical gold at any time. In amounts as small as 100 grams, redeemed gold can be sold for US dollars, shipped to the token holder’s address or collected in person at select vaults. Token holders have full control over their assets. No centralized third party can freeze or confiscate tokens. CACHE Gold tokens are deployed on the Ethereum public blockchain using the ERC-20 token standard. Bithumb Global and Bittrex Global both enable CACHE Gold token trading.
As these examples show, so-called “digital assets” are a very complex type of investment which, contrary to widespread public perception, cannot easily be reduced to a common denominator. The same also is true for the investors, because they are having different approaches and expectations of this new market. These aspects were also covered in our report, and next week we will make the findings available to our readers here on this blog.
Throughout Europe digital assets enjoy a great popularity among investors. Due to the significant price changes of individual assets in recent years, however, the timing of investments is an important factor in assessing the success of the individual investors. This article therefore aims at finding out when the investors we surveyed first started to invest in digital assets and which ones they primarily focused on.
The majority of investors gained exposure to digital assets for the first time during the past two years. Nearly 31% of those surveyed invested in crypto assets in 2018 — after Bitcoin’s all-time high in mid-December 2017, when the price was almost $20,000 per coin and Bitcoin had a $334 billion market capitalization.
Question: What was the first year your company invested in digital assets?
Source: Cointelegraph Research, Bitcoin average yearly price data from Coinmarketcap.com
An important observation is that institutional investors that have invested in digital assets have distinctly different portfolios compared to ones that have no exposure to this asset class. Digital asset investors have significantly fewer bonds, more commodities, and more cash reserves than investors with no exposure to digital assets. This is in line with the ethos of the industry — lower trust in government bonds, higher trust in sound money, and growing cash reserves in expectation of a recession.
Average Asset Allocation of Institutional Investors
Source: Cointelegraph Research
Cryptocurrencies are more interesting than Stablecoins and Security Tokens
Bitcoin and Ethereum are still the most dominant cryptocurrencies. Around 88% and 75% of respondents exposed to cryptocurrencies have invested in these cryptocurrencies, respectively. Respondents have a clear preference for Bitcoin and Ethereum, as only 31% have invested in Litecoin and XRP. A quarter of the respondents answered that they had invested in “other cryptocurrencies”. Tezos, EOS, Stellar, Binance Coin, Cardano, Bitcoin Cash, and Bitcoin Satoshi’s Vision were among some of the other cryptocurrencies mentioned.
Question: Which types of digital assets has your company invested in?
Source: Cointelegraph Research
Stablecoins have become the most highly traded digital asset when measured by daily exchange-traded volume. On-chain trading activity grew over 800% between April 2019 to April 2020. However, only 19% of respondents own stablecoins, indicating that institutional investors may not be the dominant force responsible for stablecoin daily trading volumes. Notably, 31% of investors that have exposure to digital assets answered that they have invested in security tokens. This indicates that security tokens are on the radar of professional and qualified investors. Although venture capital was not a multiple choice option, two banks that manage over €350 billion in total mentioned that although the financial institution they work for has not invested directly in digital assets, they have invested in the equity of blockchain-related startups.
The European Union rolled out negative interest rates in 2014, and Switzerland has had them since January 2015. As Fidelity’s report on institutional demand from earlier this year pointed out, a common objection against investing in gold and Bitcoin is that they don’t produce an annual yield. However, in the current environment, these assets can help investors protect their wealth from inflation and negative interest rates.
Future Demand
Among the 64% of investors who currently do not have cryptocurrencies in their investment portfolios, 39% plan to add them to their portfolio eventually. A quarter of the professional investors plan to buy cryptocurrencies at a later stage, and 14% of them plan to do so in the next 12 months.
Question: Is your company planning to invest in the future?
Source: Cointelegraph Research
Regarding the future demand for cryptocurrencies among professional investors, Bitcoin and security tokens are the assets in which investors are most interested. Surprisingly, there is more interest in security tokens and stablecoins amongst institutional investors than in cryptocurrencies such as Ethereum and XRP. This may be explained by the regulated nature of security tokens, as investors’ assets are often ring-fenced on the balance sheet of the issuer and rights in case of insolvency are explicitly mentioned in the prospectus. Furthermore, disputes can be settled by courts and contract law that the digital asset space is still building precedent for.
Question: Which digital assets would your company be interested in investing into in the future?
Source: Cointelegraph Research
After we have now dealt with these specific figures, we want to take a step back in the coming week, because some people will certainly ask themselves the question what exactly is meant by digital assets. The page Coinmarketcap.com lists more than 7000 different “cryptocurrencies”, however the differences between the entries could not be more substantial, which is the reason why we need a clarification.
Throughout Europe, investors have already invested millions of Euros and Swiss Francs into digital assets. Without a doubt, this is of significant importance for the economy in general and the crypto sector in particular, since these investors also play a major role in price movements. However, there are still only a small number of reports that systematically assess the demand for cryptocurrencies.
The first study was not focused on the German-speaking countries, and the second has not been published yet. Between November 2019 and early March 2020, Greenwich Associates under the auspices of Fidelity Digital Assets, Fidelity Center for Applied Technology, and Fidelity Consulting interviewed almost 800 investors across the U.S. and Europe.
Across the U.S. and Europe, 36% of the survey’s 774 respondents said they own cryptocurrencies or derivatives. The results show that over a third of institutional investors own digital assets. According to the survey, European investors generally have a more progressive view of digital assets, made evident when comparing the responses across all categories. Interestingly, this study found the same result: 36% of the survey’s 55 asset allocators said they have exposure to cryptocurrencies in the portfolio already.
The one survey that has targeted institutional demand for cryptocurrencies in the DACH region is BaFin’s survey of crypto asset derivatives. The German financial market regulator conducted a survey in late 2019; however, they have not published the results yet. In the survey’s preliminary research report, BaFin reported that there has been enormous growth of certificates that hold digital assets and contract for difference trading. Over 1,000 different certificates are on the market that have exposure to digital assets, and contracts for difference trading volume grew from €10 billion a month in August of 2018 to over €15 billion a month by January of 2019.
This study marks the first comprehensive survey of institutional investors on the topic of digital assets ever conducted across the German-speaking regions. The analysis contains key highlights of the survey’s results in addition to commentary from Crypto Research Report and Cointelegraph Research. Our experience combined with the proprietary dataset drives the unique perspective on the industry’s trends presented in this report.
Methodology
This survey had 55 responses from professional investors across the German-speaking countries including 44 online interviews and 11 case studies via telephone. Respondents included traditional banks, asset managers, and pension funds. This report focuses on buy-side, not sell-side asset allocators. Therefore, we did not send this survey to crypto funds that are invested 100% in digital assets. The goal of this report is to gauge the demand for digital assets from traditional financial intermediaries.
The survey was delivered via email to all registered professional investors with BaFin (Germany), FMA (Austria), FINMA (Switzerland), and the FMA (Liechtenstein) between the months of June to September of 2020. With the help of local banking associations, the survey was also sent out to the members of the BVI Deutscher Fondsverband and BAI in Germany, the Austrian Bankenverband, the Liechtensteinischer Anlagefondsverband, and members of SFAMA in Switzerland.
The majority of the respondents came from Switzerland (16) followed by Austria (10), Germany (7), and Liechtenstein (6). When sorting the survey results by country, the respondents from Switzerland managed the most assets with €278 billion. Austria’s respondents worked in firms with the highest headcount. The majority (83%) of the respondents worked in firms with less than 50 employees. Only three women that were in charge of asset allocation decisions at their company responded to the survey compared to 39 men. The median age of the respondent was 47.5 years old.
Current Exposure
Over a third of the surveyed asset managers have invested in digital assets, while about 64% of respondents have not invested yet. Among the institutional investors who have had exposure to digital assets, approximately 69% of respondents have 10% or less of their assets under management in crypto assets. Notably, over a third of those surveyed have only 1% or less of their assets under management in crypto assets.
Question: Has your company invested in crypto assets in the past?
Source: Cointelegraph Research
This survey was conducted during the 2020 shutdown of the economy due to the government’s response to the Corona virus. During mid-March, many investors de-risked their portfolios and went into cash. From peak (February 19, 2020) to trough (March 17, 2020) Bitcoin lost 50% of its value, and briefly trading in the high 4000s. Since then, the price has recovered 115% to above $10,000. Bitcoin has performed better than equities, fixed income, real estate, and gold year to date (as of October 8, 2020). If governments continue to stimulate the economy with newly created money, then this trajectory is expected to continue. If the fiat faucet is ever turned off, there will likely be an ensuing correction in all asset classes.
Question: What percentage of your company’s assets under management are invested in crypto assets?
It is important to note that these figures apply to digital assets in general, but that there is a variety of these assets that are viewed by investors from different angles. Therefore, we will take a look next week at exactly how the interest is composed and what the conditions are for investors to make their purchases.
New survey on professional investors in Europe finds that 36% have already bought crypto. The percentage of big investors that plan to buy crypto in the future is even higher.
To gain a deeper understanding of how professional investors feel about digital assets, the Crypto Research Report and Cointelegraph Consulting has co-published a 70+ page research report written by eight authors and supported by SIX Digital Exchange, BlockFi, Bitmain, Blocksize Capital, and Nexo. TheDiscovering Institutional Demand for Digital Assets report highlights which coins wealthy investors already own and which ones they plan to buy in the coming months. The report also covers the most popular regulated funds and structured products that are designed for investors from the traditional finance realm.
The total assets under management managed by the 55 asset allocators that participated in the survey was over €719 billion, which almost double the entire market capitalization of the digital asset market. Out of those professional investors, 36% already had blockchain-inspired assets in their portfolio either through direct investment in cryptocurrencies, stablecoins, and security tokens or via funds, structured products, or futures. Out of the remaining 64% that have not yet invested, 39.29% plan to invest. This results in 61.15% of professional investors in the survey either already owning digital assets or planning to buy in the future.
The majority of investors with exposure to cryptographic assets were primarily interested in Bitcoin and Ethereum. Around 88% and 75% of respondents exposed to cryptocurrencies have invested in these cryptocurrencies, respectively. However, institutional investors appear to be increasingly interested in security tokens. Out of the 39.29% of investors that plan to invest in the future, security tokens were more popular than Ethereum and other alternative coins.
Some investors hold cryptographic assets for speculation rather than for use as a medium of exchange. They hope to “front-run” Wall Street by buying in before bigger pockets enter the market. Putting the fear of missing out aside, there are genuine reasons to be excited about institutional investors joining the space. Institutional investors hold the majority of the world’s wealth. The sheer size of the wealth managed by professional investors like pension funds, university endowments, and insurance companies is enough to have a dramatic impact on the entire digital asset industry if they enter the market. For years, there have been rumors that institutional investors were starting to buy cryptocurrencies, and now, the most recent academic survey provides evidence that this rumour is true.
The survey was conducted during June through September 2020 by Professor Dr. Philipp Sandner from the Frankfurt School of Finance & Management’s Blockchain Center, Professor Dr. Alfred Taudes from the Vienna University of Economics and Business’ Austrian Blockchain Center, and Cointelegraph’s Director of Research, Demelza Hays. The report is co-published by Cointelegraph Consulting and Crypto Research Report.
Our team of academics and seasoned blockchain technologists can cover a diverse range of topics including tokenomics, macroeconomics, legal, tax, central bank digital currencies, decentralized finance, supply chain logistics, and venture capital. To work with the Crypto Research Report and Cointelegraph Research team on creating a one-of-a-kind report, contact us at [email protected].
In the book, The Liechtenstein Tax Law, Matthias Langer hits the nail on the head in respect to taxation of blockchain and FinTech companies in Liechtenstein. Alongside the tax law basics of Liechtenstein, Matthias Langer hits the nerve of the time by addressing the regulations for the taxation of blockchain and FinTech companies, and thus creates tax law clarity.
Published in 2019, the book opens up with the history of the Principality of Liechtenstein before moving on to the main topics of company, foundation, and trust law. The existing legal forms are presented concisely, followed by an overview of the type and scope of Liechtenstein’s audit, review and disclosure requirements, as well as the existing accounting regulations.
Matthias Langer has worked as a tax consultant in Liechtenstein for eleven years and now has his own law firm in Triesen. In the book, he delves into topics such as property and acquisition tax, gifts and inheritances, and income tax. The taxation of investment funds and foundations, as well as international tax law pertaining to offsetting and relocation find their way into the reading. Since Liechtenstein is also one of the pioneers in the blockchain and fintech, their handling of taxation is of great international interest. After a brief explanation of the basic terms and the balance sheet approach to cryptocurrencies, the peculiarities of the acquisition, income and value-added tax are discussed. In addition to differentiating different types of coins, the reader learns the tax significance of the transfer, trading, and storage of coins and tokens.
The book is easy to read due to the structure and short and accurate explanations that are illustrated with examples. In addition, the book enables quick reference and comprehension without the reader having to have in-depth tax knowledge. Although the book is primarily aimed at prospective entrepreneurs in Liechtenstein, it alsocontains information that is interesting for those who want to learn more about life in Liechtenstein and the country itself.
In summary, the book deals with all essential aspects of tax law in Liechtenstein. The treatment of tax law specifics of blockchain and fintech companies deserves special mention. The reader leaves the book with a deeper level of understanding of how crypto funds work and the taxation of cryptocurrencies. The book is only available in German at this time and can be bought on the publisher website, Springer Verlag.
Relai, a Dollar Cost Averaging bitcoin investing phone app made in Switzerland, announced a successful closing of its 200K CHF seed round at a valuation of 1M CHF – showing that venture capitalists are still investing in blockchain-inspired startups even during Covid-19. Among the investors is the controversial Bitcoin maximalist Giacomo Zucco, who served for the last years as board member of the Bitcoin Association Switzerland.
Relai allows its users to buy & sell Bitcoin directly via bank payment, without any account creation or KYC/AML verification, while still being fully regulatory compliant. The service is offered through a free, simple & user-friendly Smartphone App and available to all European countries. After only two months of being live, Relai’s volumes and revenues in August have more than doubled compared to July. The Relai App has been downloaded almost 2,000 times in more than 20 countries and processed well over 300’000 CHF/EUR in Bitcoin investments. More than 30 Bitcoins have already been sold, mostly to newcomers.
“Relai aims to finally boost Bitcoin mass adoption by making investing in Bitcoin as easy as finding a match on Tinder. While our great first numbers are a positive surprise, it doesn’t surprise me at all that people hate KYC and dealing with complicated user interfaces of Bitcoin & Crypto Investing Apps. If given the alternative, most newcomers will choose a service that is easy and KYC-less, for both convenience and privacy reasons.”
Julian Liniger, CEO of Relai
The most liked and most used feature of the Relai App is it’s DCA (Dollar Cost Average) function. Users can set up a weekly recurring buy order and watch their sats dropping in automatically.
“Bitcoin is currently affected by false dichotomies. You have economics-oriented experts advising newcomers to save and “stack sats” as opposed to focus on trading or spending, while infosec-aware experts advise them to avoid dangerous traps like KYC surveillance. You have terrible shitcoin-casinos wrapped in great mobile UX, versus Bitcoin best-practices limited to command-line. I like Relai since it tries to break these dichotomies with a minimalistic, intuitive, privacy-oriented, saving-oriented, Bitcoin-only design.”
What makes good money and how has the digital age changed the meaning of this term? This article takes a look at the key characteristics of a sound currency and then apply these to the MimbleWimble Coin. We will also speak with the developers of this project and demonstrate how a MWC transaction is executed.
A good money in the digital age must be: (1) recognizable, (2) scarce, (3) censorship resistant, (4) durable & indestructible, (5) extensible, (6) salable, (7) portable, (8) fungible, (9) private, and (10) divisible. However, most cryptocurrencies don’t meet these criteria. In 2019, one of the most talked about coins was “Grin.” However, investors quickly realized that Grin’s high inflation rate and lack of a hard cap on supply was worse than the inflation in the US dollar. This made people wonder why they should buy Grin with US dollars if Grin is a worse store of value. The Grin emission rate is 1 Grin per second indefinitely. There will be 31,536,000 Grin created per year. Currently, there are approximately 43 million Grin. This results in a very low stock-to-flow ratio in the early years. During 2020, the stock-to-flow ratio of Grin is approximately 1.19x or approximately 43,000,000 Grin divided by the new production of 31,536,000. This acts as a transfer of wealth from holders to miners.
As Saifedean Ammous explains, a low stock-to-flow ratio results in a transfer of value from holders of the asset to producers, while a high stock-to-flow ratio results in lower costs, measured in the asset itself, for holders. Before Grin launched, a MWC developer suggested there be an supply cap and emission rate change but was swiftly rejected by the Grin community which acted as a green light and was part of the inspiration for forking from Grin. After all, financial innovation is about trying many different approaches when bringing monetary products to market for consumers to enjoy. Every four years is a Bitcoin halving, and after the May 2020 halving the Bitcoin stock-to-flow ratio will be approximately 55. This will make it comparable to gold. MWC addressed the hard cap problem and low stock-to-flow ratio problem by placing a hard cap of 20,000,000 on the coin and then having a much slower emission rate Like Bitcoin, MWC uses a pure proof-of-work algorithm and has the highest stock-to-flow ratio of any base-layer MimbleWimble coin. By October 2020, MWC will have a stock-to-flow ratio almost equal to Bitcoin’s. And by February 2021, it will have a significantly higher stock-to-flow ratio.
When looking at the number of coins created per day, MWC, Monero, Bitcoin, and Bitcoin Cash are the lowest. In terms of the US dollar value of the number of coins created per day, MWC is still the lowest, followed by Monero and Dash. Finally, the US dollar value of new coins created per year in relation to their US dollar market capitalization is also the lowest for MWC with 1.2 % followed by Bitcoin with 1.7 %, Monero with 2.8 %, Litecoin with 6.1 %, Dash with 8.4 %, and Zcash with an astonishing 35.1 %(!).
However, MWC has received some pushback from the cryptocurrency community because of how the initial stock was created. According to the whitepaper and protocol, half of the total supply of MWC were to be mined with proof of work mining, and the other half were created in the genesis block. From this initial stock of 10,000,000 MWC that was worthless when created, 2,000,000 MWC were immediately distributed to the developer team, 2,000,000 MWC were allocated to the HODL Program, and 6,000,000 MWC were airdropped to any Bitcoin holders who successfully registered over a three month period and claimed their MWC allocation during December 2019. Over 5.4 million MWC were successfully airdropped for free to Bitcoin holders and at the time had a total value less than $2 million. MWC primarily uses the C31 proof-of-work algorithm and MWC’s new monthly emission from a pure proof of work algorithm is about $500k.
How To Do A MWC Transaction
MWC was created to meet the demand for transferring money online with full privacy because Bitcoin transactions aren’t that private or fungible.2 MWC payments are slightly different to Bitcoin transactions, the least of which being that there are only outputs and no addresses. After all, everything is CoinJoined with Confidential Transactions and then the signatures are aggregated in the blocks.
To get started, you have to download a MimbleWimbleCoin wallet. To provide some context, the other privacy coin, Grin, relies mainly on command line interface tools, but they can be difficult for non-technical people to use. This is why MWC has created a very easy-to-use wallet that can be downloaded here: https://www.mwc.mw/downloads
After you have successfully setup your wallet, there are two main ways to send and receive transactions called the MWCMQS method and the File method. In general, this involves six steps:
The sender creates the transaction using output(s)
The receiver signs the transaction
The receiver returns the transaction to the sender
The sender signs the transaction
The sender broadcasts the transaction to the network
The miners confirm the transaction in a block and add it to the blockchain
The MWCMQS Method
Sending and receiving via the MWCMQS method will be most similar to a Bitcoin transaction. However, both the sender and receiver must be able to interact. This means the receiver must be online and listening with the address the sender is attempting to send to. This means you cannot just provide an address and turn off your laptop and go to bed like you can with BTC, LTC, etc.
To get started, open up the wallet and click “Receive” in the left-hand menu. Copy the mwcmqs:// address and send it to your partner. Sending via email or a messaging application is fine. In order for your partner to send you a transaction, your wallet will need to be online and listening (in the lower right the MWCMQS will need to be green) for that specific address.
Once your sender copies in the address that you send them, they can paste in the address on the wallet by clicking on the “Send” option in the left-hand menu. They can also send a message along with the transaction.
The File Method
Although the MWCMQS method is the easiest method for people that used to send Bitcoin transactions, the most private way to send MWC transactions is with the File method.
Sending and receiving by File requires five steps.
The sender creates the transaction and generates a .tx file
The sender provides the .tx file to the receiver
The receiver signs the transaction and generates a .tx.response file
The receiver provides the .tx.response file to the sender
The sender signs the transaction and broadcasts it to the network by finalizing the transaction
To get started, a sender will attach the mwc-payment.tx file to an email and then email this file to the receiver. This covers the first two steps. The receiver must then download the file from the email and then go into their MWC wallet and insert the file. Depending on your operating system, a little box may pop up when you click “Receive mwc by file.” This box will ask you for permission to access files in your Downloads folder. Once you click “OK” you will need to find the specific .tx file that the sender sent you.
Then the receiver needs to email back a new mwc-payment.tx.response file, which will constitute the next two steps. Then, the final step will be finalizing the transaction on the sender’s side. The sender and receiver can check the transaction on the block explorer: https://explorer.mwc.mw/. By clicking in the upper right corner on the Gear, MWC users can see their transactions on the blockchain by double-clicking on the output. What is cool is that only you and the person you transacted know how many MWCs are associated with that particular output.
Fireside with the MWC Team
Are you inspired by Austrian economics? If so, please who is your favorite Austrian economist? What is your favorite book on Austrian economics? And, last but not least, what is your favorite quote?
Yes, we like the Austrian school of economics because of its objectivity. It is about understanding how things are in contrast to how we many want them to be. Mises, Rothbard, Gordon, Block and others have produced some excellent work. Human Action is a foundational text in the area. We are monetary sovereignty maximalists and are big fans of any means that help accomplish that purpose or aim whether that comes in the form of gold, silver, Bitcoin, Dogecoin, MWC or whatever. As Mises explained, “It is impossible to grasp the meaning of the idea of sound money if one does not realize that it was devised as an instrument for the protection of civil liberties against despotic inroads on the part of governments. Ideologically it belongs in the same class with political constitutions and bills of rights. The demand for constitutional guarantees and for bills of rights was a reaction against arbitrary rule and the nonobservance of old customs by kings. The postulate of sound money was first brought up as a response to the princely practice of debasing the coinage. It was later carefully elaborated and perfected in the age which—through the experience of the American continental currency, the paper money of the French Revolution and the British restriction period—had learned what a government can do to a nation’s currency system… Thus, the sound-money principle has two aspects. It is affirmative in approving the market’s choice of a commonly used medium of exchange. It is negative in obstructing the government’s propensity to meddle with the currency system.”
You mention that the MWC team are invested in Bitcoin. Are you invested in any other privacy-related coins?
We do not know. The MWC Team is composed of a significant number of people who are united by the purpose or aim of monetary sovereignty. And part of that means that what each of us does with our own money is our own business and not the business of others.
What do you say to the argument, “Only criminals use privacy coins?”
Without the ability to keep secrets, individuals lose the capacity to distinguish themselves from others, to maintain independent lives, to be complete and autonomous persons. This does not mean that a person actually has to keep secrets to be autonomous, just that she must possess the ability to do so. The ability to keep secrets implies the ability to disclose secrets selectively, and so the capacity for selective disclosure at one’s own discretion is important to individual autonomy as well.
Secrecy is a form of power. The ability to protect a secret, to preserve one’s privacy, is a form of power. The ability to penetrate secrets, to learn them, to use them, is also a form of power. Secrecy empowers, secrecy protects, secrecy hurts. The ability to learn a person’s secrets without his or her knowledge — to pierce a person’s privacy in secret — is a greater power still.
We want to help humanity exercise their unalienable right to secrecy, or in other words, to have you and your property left alone. This is even more important now that we have tools like Bitcoin and MWC which are based on public-private key encryption.
Who is the target demographic for privacy coins? What do you think is the average demographic of a privacy coin user? I mean, do you think that privacy coins are primarily used in developed countries or in developing countries? Do you think they are used by relatively rich people or relatively poor people?
We are not really sure since we have not done much market analysis besides personal introspection. For the most part, we have been significant Bitcoin holders for many years but are cognizant of its characteristics and how it does not necessarily perform very well all of the jobs we may want it to. We saw the opportunity to build a product we wanted to use ourselves, extremely scarce ghost money, and the other monetary entrepreneurs in the marketplace were currently neglecting that market demand or choosing design characteristics we did not find compelling in a product. So we built the type of monetary product we wanted to use ourselves.
What are the main points on the roadmap for MWC during the next 12 months?
Fully distributing the initial stock via the unclaimed airdrop fund and HODL program, additional exchange integrations, greater market liquidity, additional Grin rebases, release a mobile wallet, atomic swaps, a decentralized exchange, multisig, Lightning Network and other features.
Conclusion
The MWC network was launched in November 2019 and has functioned flawlessly with 100 % uptime. The MWC team considers the protocol ossified and currently sees no need for a future hard or soft fork unless a defensive action were required to protect the network. We feel the MimbleWimble sector may be neglected, to contain significant disruptive technological innovation potential, and there may be significant information asymmetry in the market. This type of technology is especially important in the age of surveillance.
Privacy is an important right that we must protect at all times. But not only authoritarian states can attack our privacy, other malicious actors can also use the knowledge about our financial situation against us. For this reason, Privacy Coins and other privacy options might play an essential role in the future of digital money.
One of the main reasons for Bitcoin’s success and popularity, is its trustless design. Instead of trusting humans with clearance and settlement of financial transactions, Bitcoiners opt to trust software protocols. What was particularly revolutionary about Bitcoin was how the network used proof-of-work to stop double-spending attacks and how anyone around the world could validate new transactions and store a copy of the database’s history. Imagine if Credit Suisse or Bank of America not only allowed anyone to see their entire database of transactions, but also allowed anyone to vote on the validity of new transactions.
However, over time becoming a validating node on the Bitcoin network became increasingly expensive and exclusive because of the size of the Bitcoin blockchain. Without heavy investments in computing power, relaying new transactions and storing a copy of the database is impossible. A newcomer to the Bitcoin blockchain needs to spend approximately one week downloading the 277-gigabyte database of existing transactions in order to participate in the validation of new transactions. However, the “blockchain” associated with Bitcoin is only one type of distributed ledger database architecture. There are also other kinds of distributed ledger databases, such as IOTA’s directed acyclic graphs that we explored in the June 2018 edition of the Crypto Research Report. This article discusses a different type of distributed ledger architecture called MimbleWimble that has specific advantages and disadvantages compared to Bitcoin’s blockchain.
What Are Privacy Coins?
In a recent report by the European Union Blockchain Observatory and Forum called, Legal and Regulatory Framework of Blockchains and Smart Contracts, the authors explicitly state that regulators should use blockchain explorers to track transactions and to find out personal information about the senders and receivers of Bitcoin transactions.
While not always identifiable at the moment of the transaction, given enough time and effort, many parties to a transaction can be unmasked. Therefore, at this point there is no question of total impunity for blockchain actors.
Thirdly, however, it cannot be denied that some privacy-focused blockchains, for example Monero or ZCash, can provide bad actors with effective tools for true anonymity. It is important to note that in practice anonymous transactions are currently not widely used: Bitcoin and Ethereum, the most popular platforms, do not support anonymity.
Governments also try to discourage the use of anonymization techniques in blockchain networks by, for example, imposing AML rules, thereby policing the gateway between the worlds of cryptocurrencies and fiat money (see also next section). That said, while anonymisation does not pose a significant enforcement risk on public permissionless blockchains at the moment, should the use of anonymous blockchains spread significantly, it could become a problem.
It seems that providing states with identification tools (potentially under the control of courts or through the private sector on a payment basis) should be a minimum condition necessary for a state’s ability to enforce the responsibility and thus to ensure the impact of the law on human behaviour in the blockchain space.
Many market participants consider fungibility a characteristic of good money. Bitcoin lacks fungibility, which means bitcoins can be traced to their initial transaction when they were mined. Privacy coins are coins that attempt to improve upon Bitcoin’s privacy by hiding the amounts that are traded and the wallet addresses involved in the transaction. Privacy coins use technologies such as coin mixing and confidential transactions. The largest privacy coins include Dash, Monero, Zcash, Grin, Beam, and MimbleWimbleCoin. In 2014, Dash was launched, and it was the first privacy coin on the market. Dash gives each user the option to make each transaction private or not. Dash’s technology uses coin mixing to obscure information about the sending and receiving addresses, and only 2 % of Dash transactions use Dash’s privacy option. The rest of Dash’s transactions are just as traceable as Bitcoin transactions. A few months after Dash came out, a new privacy coin called Monero was released to the market. Unlike Dash, every Monero transaction is private. Blockchain explorers don’t see the amounts being sent in Monero transactions. Monero introduced ring confidential signatures, which provide very strong privacy for Monero users. A few years later, Zcash came out in 2016, and then more recently, in 2018, the MimbleWimble base layer coins Beam and then Grin came out.
Figure 1: Performance of Privacy Coins, 2016–2020
However, the developers of privacy coins face design choices that each have unique tradeoffs. For example, Monero is more private than Dash because the transaction amount is hidden, but Monero is less scalable because it takes more resources to run a full node, which makes it less censorship-resistant. Another tradeoff is between being able to prove a coin is scarce and having privacy features. Blockchains that obscure the amounts being transacted have difficulty determining the total amount of coins in circulation. In a recent interview on the Academic Blockchain Podcast with the Chief Technology Officer of Ledger, Demelza Hays discussed Zcash’s “inflation bug.” Zcash’s inflation bug makes it impossible for anyone to actually calculate the total amount of coins in existence. This means that there could be an infinite amount of coins in existence, which goes against one of the pillars of a good money in the digital age, namely, scarcity. However, the MimbleWimble protocol uses mathematical proofs involving excess values of intermediate transactions to prove that all debits and credits in the ledger sum to zero.
But what is MimbleWimble? In 2016, an anonymous person released the MimbleWimble protocol to increase Bitcoin’s scalability and privacy. MimbleWimble is a way to sign and validate transactions without needing to validate each historical transaction and to include the inputs of a transaction into a new transaction’s hash. This drastically reduces the size of the blockchain. Proponents originally proposed MimbleWimble as a sidechain or soft fork to Bitcoin; however, the current implementations of the MimbleWimble protocol are by new cryptocurrencies that created new blockchains including Grin, Beam, and MWC, that elegantly apply MimbleWimble in the base layer.
During 2019 and into 2020, much of the MimbleWimble hype had died down along with the market caps of Grin, currently about $19 million, and Beam, currently about $16 million. MimbleWimbleCoin (MWC) forked from Grin in November 2019 and hit a low of $0.25 per coin with less than a $2 million market cap in early December. However, since December, the market cap of MWC has grown 6,100 %. The MWC market cap is currently around $125 million and has been consolidating over $100 million for most of the past two months. By market cap, MWC is currently the 3rd largest privacy coin behind Monero and Zcash and the 13th largest proof-of-work coin behind Bitcoin Gold and Decred. MWC is currently traded on Hotbit, Bitforex, Whitebit, Trade Ogre, and Toktok.
The two ideas that form the basis for MimbleWimble stem from the Blockstream co-founder Gregory Maxwell’s work on “Confidential Transactions” and “CoinJoin.” Confidential transactions use encryption so the public blockchain doesn’t show the amount of coins being sent or received in a transaction. For example, in Bitcoin, anyone can see the amount of Bitcoin that is sent in each transaction. However, in MWC, the public cannot see how much is being sent even though verification can be done of adherence of the transaction to the consensus rules to, for example, prevent double-spending and enforcing the total number of coins. The second innovation that the MimbleWimble protocol uses is CoinJoin. This means that multiple transactions in the network are merged into one transaction so that blockchain forensics cannot discern the real sender and real receiver of a specific transaction.
Figure 3: The Newest Privacy Coin on the Market: MimbleWimbleCoin
However, there are disadvantages of the MimbleWimble protocol as well. For example, the MimbleWimble protocol doesn’t allow extensive scripting. Fortunately, there has been significant research done since then, and with MimbleWimble these types of scripts and applications are possible: Multi-signature transactions, time locks, atomic swaps, and hashed time-locked contracts which are the building block of payment channels and Lightning Network. Another large disadvantage of coins that use the MimbleWimble protocol including Grin, Beam, and MWC is that currently these blockchains aren’t widely used. Until more people use these coins and more people send transactions, the benefit of privacy from their use may be limited.
In the coming week we will take a closer look at MimbleWimble and also talk to the developers behind MWC. In doing so, we will also look in detail at how a MimbleWimble transaction actually works and what benefits it brings.
