Crescent Talks Crypto
ALL YOU NEED TO GET CAUGHT UP ON THE WORLD OF CRYPTO IN 10 MINUTES OR LESS
03/26/2018 - 04/02/2018
Vitalik Buterin Proposes Capping Ether Supply at ~120 million
On April 1, Vitalik Buterin authored a post on the Ethereum Github where he proposed setting a hard cap on the total supply of Ether at 120,204,432 ETH, which is 2x the amount sold in the original ETH sale, and ~22% larger than the current circulating supply. In the future, and after the shift to Proof-of-Stake, Vitalik's intent is that the supply of Ether will reach equilibrium at a point where rewards net with penalties/fees. At the end of his proposal, Vitalik states that if this change were adopted at a point when it is too late to set the max cap at ~120m ETH, then he would suggest a higher cap of 144,052,828 ETH.
On April 2, Vitalik posted on his twitter where he acknowledged that the point of this proposal was to have the community engage in a discussion over the merits of such a change, and implement it if they saw fit. Vitalik then went on to list the following reasons why he believes a change to a fixed supply makes sense.
- “With ASICs, PoW issuance fails at making coin distribution more egalitarian."
- This is a valid point as the current PoW system favors concentrated mining pools.
- "With PoS, PoW issuance not needed for security."
- Correct, the model does change under PoS.
- “With rewards coming from rent + other burned fees, can have rewards without issuance.”
- Related to his point of reaching an equilibrium where rewards are offset by penalties/fees.
Why does this matter?
There has long been uncertainty around whether the total supply of Ether would continue to grow indefinitely, or be capped at a finite amount. If this proposal were to be implemented then it would theoretically lead to upward pricing pressure in the future as the scarcity of ETH increases. It's important to note that a change such as this, even if viewed favorably, could take months if not longer to implement.
What’s the word on the street?
While Vitalik's Github post is relatively brief, this proposal has certainly led to questions regarding the impact of such a move. Vitalik states that this change would be done "In order to ensure the economic sustainability of the platform under the widest possible variety of circumstances". Members of the community have rightly asked for greater detail on just how exactly this proposal helps to solve for economic sustainability, especially when compared to a model with an ever increasing supply, or the higher proposed cap of ~144m ETH. Vitalik later went on to post the following link on his Twitter, which he had previously authored in October 2017, detailing why a long run inflationary token is a bad idea.
Where can I read more?
Vitalik Buterin's Website
Ethereum Founder Suggests Hard Cap of 120 Million Ethers
CBOE Tells SEC They Should Move Forward with Bitcoin ETFs
An ETF (exchange-traded-fund) is a marketable security that tracks an index, a commodity, bonds, or a basket of assets like an index fund. In January 2018, the SEC issued a letter citing insufficient liquidity and potential risks for manipulation as reasons for why they were not approving a Bitcoin or Crypto ETF. In a letter dated March 23, the President of CBOE Global Markets, Chris Concannon, responded suggesting the SEC stop interfering with the development of a Bitcoin ETF because they are similar to other commodity-based ETFs. In his letter, Concannon stated that “As the volumes continue to grow, especially on regulated US markets, the overall spot Bitcoin market looks more and more like a traditional commodity market and CBOE continues to believe that the spot market is sufficiently liquid to support a Bitcoin ETP.” He went on to further support his proposal by declaring that the “CBOE believes that the arbitrage mechanism would function identically to other commodity-related EPS...thereby keeping the price of the ETP in line with the price of Bitcoin and limiting the risk of manipulation shares of the ETP”.
Why does this matter?
In the SEC’s letter from January, they raised five concerns about “investor protection” regarding cryptocurrency ETFs: valuation, liquidity, custody, arbitrage, and market manipulation. That being said, the CBOE is suggesting that “the vast majority of these concerns can be addressed within the existing framework for commodity-related funds related to valuation, liquidity, custody, arbitrage, and manipulation.” CBOE pointed out that more than $70 billion in notional value of BTC transactions traded hands in the spot market in December, and that such liquidity would easily support a Bitcoin ETF. Meanwhile, the SEC has not approved any of the dozen Bitcoin ETF proposals that have been sent their way over the past few months, four of which were submitted by the CBOE. Hopefully the CBOE’s letter encourages the SEC to reevaluate their stance on Bitcoin and Crypto ETFs.
What’s the word on the street?
Given Bitcoin’s 1,500%+ surge last year, a lot of institutional investors have been sitting on the sidelines eagerly awaiting a regulated way to get exposure to this space. CBOE’s line of thinking here is that ETFs would give investors the transparency and accessibility they have been looking for in this market. SEC allowing a Bitcoin ETF would definitely send a bullish signal to, both, the wider community who hasn’t invested in crypto yet as well as investors who have been following the space for years.
Coinbase Announces Intention to Support ERC20 Tokens
Last week Coinbase announced its intention to support the ERC20 technical standard, the standard used for Ethereum smart contracts, in the near future. Coinbase offers a suite a products and the implication of this announcement varies across the products. Coinbase Custody, the leading digital asset custodian in the U.S, will likely be impacted first as it expands support for deposits and withdrawals. The custody arm is aiming to generally facilitate the storage of a wider selection of coins relative to the actual trading pairs offered on GDAX and Coinbase. When it comes to trading pairs, GDAX will be the first place that users can buy and sell these new assets as per their new asset onboarding process. Once an asset is trading on GDAX, Coinbase Asset Management would then be required to add it into the Coinbase Index (CBI), its new marketcap weighted index product, as per the index guidelines. Coinbase Commerce, Coinbase’s digital currency payment processing product, has no planned ERC20 support at this time. Addition to Coinbase would occur afterwards and requires clearance from their internal asset selection committee.
Why does this matter?
Ethereum based ICO’s have continued to dominate the cryptocurrency fundraising market, leading to some of the largest and most well-known alt coins to be ERC20 tokens. At the same time if you exclude Ethereum itself, Bitfinex is the only top 5 exchange (by 24H trading volume) to offer an ERC20 USD trading pair. Listing ERC20 tokens should both open the door for further mainstream investment into alt coins and could help decouple the correlation between Bitcoin and those same coins over time.
What’s the word on the street?
Despite the seemingly bullish nature of this announcement, the overall market decline has caused its impact to be muted. There has been speculation across various podcasts, twitter posts and reddit threads as to what potential coin candidates might be, but without explicit timing from Coinbase, investors and speculators seem to be more focused on timing the bottom of this market wide decline. Listed coins will likely do well initially based both on the coin base effect that we experienced with Bitcoin Cash, as well as the fact that Coinbase Asset Management will have to purchase these coins for the CBI tracking fund. Overall, we believe the impact of this announcement would’ve been different had it occurred before this market downturn, but its significance should not go unnoticed in the context of longer term adoption and market penetration.
The last week was a little quieter on the regulatory front, but a few key developments are:
- South Korea’s Ministry of Strategy and Finance is expected to release cryptocurrency tax rates by the end of June, with the intent that these rates would be implemented by next year. Cryptocurrency trading is not subject to taxation under the current framework.
- Thailand’s Ministry of Finance proposes cryptocurrency tax rates that include both a 15% capital gains tax, and a 7% value added tax.
- Kazakhstan’s National Bank is considering a ban on crypto mining, and the exchange of cryptocurrency for its national currency citing risks associated with money laundering and tax evasion.
U.S. Takes Backseat to China on Blockchain Patents
According to the International Patent Organization, China filed over half of the 406 blockchain patents in 2017. For comparison, US came in second places with 91 applications. This is particularly interesting, given China's stance on the space in 2017. Quartz also notes that the Chinese government is interested in creating its own digital currency secured on the blockchain.
Earlier this year, Bloomberg reported that Bank of America had applied for 43 patents for blockchain as well. Banks have started trying to educate the US Patent and Trademark Office to limit patents that could be used against them as well as ensure they'll be able to get the patents they want.
While applications for patents don't necessarily all get approved, patents definitely help show how much interest a variety of different sectors and companies have taken to the technology of blockchain. The rate of blockchain patent applications has tripled in the last year alone. Just this past week, Ford filed a patent for vehicle-to-vehicle communication methods that involve the exchange of crypto tokens to facilitate the traffic flow. Intel also made headlines when they filed a patent for a new Bitcoin mining chip accelerator. It'll definitely be interesting to watch how these patents play out and what other companies jump into the game as time goes on.
What we're watching this week:
What: Global Blockchain Forum
When: April 2-3, 2018
Source: GB Forum