Privacy wars heat up.
The tension between crypto’s libertarian roots and the compliance that comes with greater adoption is building. This week, a number of announcements about analytics software and blockchain technology used for contact tracing got the community up in arms.
Congressman Warren Davidson, this week’s guest on Unchained discussed privacy issues on the show, as well as his views on how the pandemic and the election will affect the hope for crypto-friendly regulation to be adopted in the US. And on Unconfirmed, we hear from Robby Greenfield, who describes the reaction he has received from espousing his views on racism in the crypto industry, and how this technology could be used for social good.
This Week’s Crypto News…
The Block reports that, more than a year after Coinbase’s controversial acquisition of Neutrino, the cryptocurrency exchange wants to sell blockchain analytics software to the US Drug Enforcement Agency and the Internal Revenue Service. Neutrino was an Italian IT firm whose software had been used to spy on citizens, and the Coinbase purchase set off a #deletecoinbase campaign. While the government grants have not been awarded yet, a Coinbase spokesperson did tell The Block, “the information offered in Coinbase Analytics has always been kept completely separate from Coinbase internal data,” noting that it is sourced from online, publicly available data. The response on Crypto Twitter can basically be summed up with this tweet: “You can’t buy bad press like that. Seriously.”
ConsenSys is also getting into the analytics game, with the launch of Codefi Compliance, a compliance and analytics suite that focuses on DeFi on Ethereum and can track up to 280,000 tokens. The Crypto Twitter take: “I thought the main point of DeFi was no KYC?” ConsenSys said this would not reveal personally identifiable information. Meanwhile, Chainalysis introduced investigation and compliance support for Dash and Zcash. While these are privacy coins, Chainalysis explains that only 9% of Dash transactions use its privacy feature, PrivateSend, and that techniques used to analyze CoinJoin transactions on Bitcoin can be used on Dash. Meanwhile, only 0.9% of all Zcash transactions are completely shielded, so Chainalsys can still provide information on more than 99% of Zcash activity.
A survey of 800 institutional investors in the US and Europe found almost 80% are intrigued by digital assets, with 36% already invested in the market. Broken out by market, Europe seems to be more bullish, as only 27% of US institutions, including pension funds, family offices, investment advisers and digital and traditional hedge funds, have invested in cryptocurrency, which is up from 22% a year ago. Additionally, the exposure of US investors to digital asset futures jumped from 9% to 20%.
Meanwhile, Bakkt and Galaxy Digital have teamed up on a white glove service for institutional investors wanting to buy and store bitcoin.
The Defiant reports that the total number of unique Ethereum addresses surpassed 100 million on Tuesday. Since many users have multiple addresses and some addresses can be created by trading bots, reporter Camila Russo points out that the total number of Ethereum addresses with a non-zero balance is 40 million, while daily active addresses is about 1/100th of that, at 400,000, down from a high of around 700,000 at the peak of the ICO bubble in January 2018.
The power struggle at Bitmain continues, with perhaps ousted founder Micree Zhan stopping a Shenzhen subsidiary of Bitmain, where he is still a director, from shipping Bitcoin miners to clients. The chaos has caused many clients to switch to Bitmain’s biggest rival, MicroBT. Meanwhile, there’s a new update to the saga over the official seal, which is used to make company actions binding. Zhan and the cofounder with whom he is battling, Jihan Wu, each claim to have the company’s official seal. On Wednesday, Bitmain’s WeChat account appears to have been taken over by Zhan using what may be the new company seal, but the Bitmain website claimed all the posts made afterward were fake. Then, on Thursday, the official WeChat account published another notice with the new seal, ordering all Bitmain employees back to the Beijing office under threat of losing their salaries.
With the coronavirus highlighting the possible applications for blockchain-based identity, Microsoft’s decentralized identity tool ION, which is anchored in the Bitcoin blockchain, launched in beta. CoinDesk reports that it is one of a number of tools being fast-tracked to help with contact tracing, health certificates and other types of coronavirus response. However, some in the crypto community find such applications potentially dangerous. Harry Halpin, CEO of privacy tech startup Nym, said, “Governments need to establish identities of who owns these keys, so they say, ‘OK, we’ll have an open standard, call it decentralized, and make it mandatory.’”
HRF launches a fund to support developers who are “making the Bitcoin network more private, decentralized, and resilient so that it can better serve as a financial tool for human rights activists, civil society organizations, and journalists around the world.” The first recipient of a gift from the fund is Chris Belcher, who is working on Coinswaps, which makes it harder for authorities to trace Bitcoin transactions. HRF is also crowdfunding to further support Bitcoin development at hrfdevfund.funraise.org. Gifts given at that address will go toward individuals or teams working on improvements to the Bitcoin network.
Deribit had an interesting post this week analyzing a new Ethereum Improvement proposal, saying that it would be a significant change for users, miners and wallet providers and would be the largest change to how users bid for blockspace on any of the major blockchains. First, it proposes that, as much as possible, all transactions should pay the same fee rate, with users deciding whether to pay the fee or not, not how much to bid. Second, it would allow for more variation in block size, to account for the fact that demand for blockspace fluctuates. This would allow some blocks to be larger and others smaller, while enforcing an average blocksize limit. Third, it would untie network security from transaction fees by instead burning transaction fees and incentivizing miners by a perpetual block subsidy. Finally, by enforcing that transactions burn a specific amount of ETH, it helps preserve the monetary premium of ETH.
There will be a movie made about the Winklevoss twins — and it’s based on the book Bitcoin Billionaires! ICYMI, be sure to check out my interview with author Ben Mezrich, who, by the way, also wrote the book that became the film The Social Network. The Bitcoin Billionaires movie will be co-produced by Stampede Ventures — and Tyler and Cameron themselves.