Bitcoin regulation at a glance: Rumours, court hearings, taxation

Something’s going on with the regulation of crypto currencies. Hardly a day goes by without a central bank issuing a warning against digital currencies. But the crypto currencies don’t just cause negative headlines – some authorities also report positive news.

USA: Bitcoin loophole is property of the IRS says

The IS Internal Revenue Service published a report at the end of March in which the “mined” Bitcoin loophole is classified as taxable property as soon as it passes into ownership. In addition, Bitcoins are taxable when used as payroll or commercial means of payment:

The reaction of Bitcoin supporters in the USA was mixed. If the Bitcoin is treated as an investment, it gives access to preferential capital gains rates for all Bitcoins held for more than a year and a day. At the same time, however, it also provides a basis for recording the winnings of each Bitcoin sent or received.

For US taxpayers who treat the Bitcoin as a long-term asset that is good news. For those who primarily trade Bitcoins, however, it is rather bad news.

The subtleties and effects of the IRS announcement are likely to create a lot of discussion among Bitcoin enthusiasts in the coming months: for example, the IRS has not addressed whether the exchange of Bitcoins into other crypto currencies also entitles them to tax profits.

USA: Does Texas follow the New York example?

This week, the Texas Department of Banking published a letter addressed to all “virtual currency companies” that already trade in Texas or want to do so. The letter states that crypto currencies based on a promise to convert it into money at a later date or elsewhere do not constitute an act of money transfer in the state.

However, since the Texas Department of Banking represents only one government agency, the statement does not affect FinCEN’s registration requirement.

Texas has aggressively built up a business-friendly climate in recent years, attracting many high-profile and higher-tax companies. Most importantly, Austin is known as a progressive center for technology companies, including many Bitcoin startups.

USA: If the Bitcoin is not money, can money laundering be done at all?
On April 1, Ross Ulbricht, lawyer of the now disbanded online platform Silk Road, kicked off a debate to drop some accusations against his client. If the Bitcoin is not money, his client cannot be charged with money laundering.

Great Chances for the news spy in 2019

Opinions can be divided about 2018. From an investor’s point of view, at least, it was not a good year: Bitcoin’s share price fell by more than 80 percent since its all-time high in December 2017, the bursting of the ICO bubble and repressive action by stock market regulators against token sales. On the flip side of the coin, the past year, however, held some delicacies in store. Fidelity, one of the largest investment companies on the planet, announced its intention to immerse itself in the world of crypto currencies. Furthermore, the accreditation of the first Bitcoin ETP in Switzerland is a sign of progressive acceptance.

2019 is preparing to build on this development. Beyond all course prognoses here are the five large chances for crypto in 2019.

Bitcoin ETF and the news spy

In 2017 it was the news spy, in 2018 it wasn’t, but in 2019 the first accredited Bitcoin ETF, the VanEck SolidX Bitcoin ETF, could finally be launched. Once again, the deadline for the news spy decision by the US Securities and Exchange Commission (SEC) cannot be postponed. At the end of February it will be time to keep your fingers crossed for SEC approval. If the stock exchange supervisory authority approves the financial product, it would be a bang. Because then, according to the narrative, Bitcoin gains the legitimacy of a secure and regulated financial product.

This would then call on institutional investors whose capital is just waiting to send the Bitcoin share price on its lunar journey. At least the Galaxy Capital CEO Mike Novogratz claims and coined the term pair “institutional FOMO” in this context.

The chances for a permission on the part of the SEC are not bad. After all, there are already regulated Bitcoin derivatives such as the Bitcoin futures contracts on the Chicago options exchange CBOE – and these work perfectly.

Bitcoin lighting network

The inclined Bitcoin maximist likes to project his hopes for a penetration of the crypto currency no. 1 onto the development of the Lightning Network. All attacks on the supposedly inadequate usability of BTC in daily use are casually parried with reference to the second-layer solution.

For some this is the obvious solution of the scaling debate, for others the development is a waste of time, one should rather concentrate on updates of the blockchain. The camps are inseparably split. This trench warfare can be illustrated by the rejection of a donation from Roger Ver by the Lightning development team OpenNode. The US company rejected a US$1.25 million donation. They wanted to improve BTC and not BCH.

Meanwhile, Lightning’s capacity is growing briskly. It was not until December 2018 that the network passed the historic 500 BTC mark.

The Lightning Network just hit 500 BTC in network capacity. The network keeps growing at a staggering pace

Start running your own node and open channels while on chain fees are low before the next bull market.

Enjoy private bitcoin transactions settled instantly ⚡️

The growth in network capacity is steady to exponential, as illustrated in the graph below:

But you have to be realistic at this point. Although Lightning will grow in 2019, we won’t see a mass adaptation this year.

Bribery through Smart Contracts – Danger for Bitcoin Mining?

Could bribes paid through Smart Contracts undermine the general Bitcoin mining pool model?

A new research report sheds light on an attack mechanism characterised by the malicious use of a smart contract. Miners are to be prevented by payments from solving their cryptographic puzzle – an attack on the basis of mining itself.

Bitcoin mining is an energy-intensive and competitive process in which the participating parties try to find the next block for the network.

The paper entitled “Smart Contracts Make Bitcoin Mining Pools Vulnerable” was published by Yaron Velner of Hebrw University of Jerusalem. Jason Teutsch from the University of Alabama and Birmingham and Loi Luu from the National University of Singapore School of Computing are also involved.

The research published on March 7 describes how, in the right scenario, an attacker could use smart contracts to direct payments to Miner. These would then contain information before the pools (or other large alliances).

This would allow the malicious party to increase its share of profits relative to the pool hash rate. On the other hand, such an attack could also be used to damage an opposing pool in favor of its own pool.

The key is cryptosoft. The authors explain it as follows:

“The use of cryptosoft for such an attack is essential according to onlinebetrug. In fact, it is unlikely that several miners will join forces for such an attack unless their payment is otherwise guaranteed. In addition, the attack via a smart contract leaves the attacker anonymous and prevents the counterattack (e.g. by a Denial of Service attack), as well as the resulting shutdown.”

Why would you do that? Those who dig on their own and don’t have large hash rates run the risk of using all the power for nothing.

That’s why miners join together to form large pools, which provides a concentration of enormous hash power. The block reward (if there is one) is split, with the split varying according to the hash rate achieved.

With a Block withholding attack, a miner with large hashing power can split the reward between two pools by withholding a proof of work from one.

According to the authors, however, it was the development of smart contracts that made such coordinated attacks possible.

But such an attack is probably doomed to failure – especially by those who shy away from ethical concerns and others who don’t want to rely on smart contracts to get paid (because in the past such contracts hardly worked).

The paper is available here in English.

Comment by Danny de Boer:

And what if smart contracts are developed so far that they work? How far can we trust moral standards? Isn’t it also immoral for a Miner to dig chronically underpaid in his pool?

This kind of attack is only the threshold. If you think a little further, bribes could generally be made with smart contracts and the briber always remains a secret.

Top software for lobbyists? Let’s hope that we don’t slip into a ‘war of pools’ – after all, all pools have the same goal: making money by securing the (Bitcoin) network.

Mexico prepares for the digital future

Mexico gets its first Blockchain compound. Bitso, Volabit, BIVA, GBM, Lyna Capital, ConsenSys and Exponent Capital join forces. The companies are committed to educating the population about the technology. Above all, it is about arming oneself for the imminent technological revolution.

La Asociación Blockchain México – this is the name of the new association that has dedicated itself to the topic of blockchain in Mexico. The merger of the companies Bitso, Volabit, BIVA, GBM, Lvna Capital, ConsenSys and Exponent Capital aims at one thing above all: to inform the population about the Blockchain technology.

Mexico wants to create security for the Bitcoin formula

According to Forbes Mexico, the association is also interested in establishing Bitcoin formula technical and regulatory standards which are not a scam. Before the technology can spread any further, they want to create security in order to avoid dangers such as money laundering. However, the advantages of the technology are still in the foreground. Mouses Cassab, founder of Exponent Capital, told Forbes:

“The current applications of the blockchain range from reducing the costs of sending money transfers and international payments to democratizing the financial system,” he says.

In doing so, the association wants to prepare itself for the spread of blockchain technology and the technological progress that goes with it. In Germany, the association finds its counterpart in the Blockchain Bundesverband, which, among other things, has published a position paper on the subject.

Blockchain companies in Germany

The majority of German Blockchain companies are based in Berlin. Most of these companies deal with the topics finances and crypto currencies and were founded in the Bitcoin boom year 2017. More than half of the blockchain start-ups are already generating revenues. This is all the result of a study that BTC-ECHO carried out in cooperation with BlockState. If you want to know more about financing, turnover and the current stage of development of the companies, you can read it here.

Lisk Core 0.9.15.: Hard fork after faulty transaction

On 2 June, the Lisk network came to a brief standstill. In the early morning hours of 2 June, someone had smuggled a transaction with the wrong time stamp into the LISK chain. However, the Lightcurve team was able to solve the problem quickly with a hard fork.

Max Kordek told BTC-ECHO about the Bitcoin secret:

“The most important Bitcoin secret right now is that we were able to quickly identify the problem, find a solution and bring in two Lisk Core updates. One to address the problem and the other to prevent similar problems in the future.” Read more about it:

On Saturday morning there was a lot going on in the offices of the Lightcurve team of the Lisk Foundation (What is behind Lisk?). The Lisk chain worked, but not properly: Most of the new blocks were simply empty. Moreover, they were only in memory and not in the database. In the meantime, a transaction with a wrong time stamp had crept in, which ultimately brought the entire chain to a standstill. However, the Lightcurve team was able to locate and fix the problem relatively quickly.

New fork, new luck

When the Lightcurve team noticed that they needed the Lisk Core 0.9.15 release to prevent such transactions in the future, they briefly asked the exchanges to freeze all transactions. The team then successfully tested the new version on the test net before transferring it to Mainnet:
“To get a smooth upgrade of the entire network, we had to do a hard fork.” (What is a hard fork?). The new release was then placed on one of the Mainnet nodes. For a short time, the parameters were changed to an earlier version so that retroactive synchronization could take place without the harmful transactions.

On Saturday afternoon the official version Lisk Core 0.9.15 was released and the delegates in the network were able to update their nodes.

So far, so good. The timestamp problem was solved. But the root of the problem still had to be tackled by the team – Lisk Core hadn’t found the exact bug yet. Accordingly, the Lightcurve team sent the Lisk Core 0.9.16 version directly behind.

In the future, it will be used to fix such bugs and prevent new blocks from being created at all if there is a bug in the system.

Interview with Max Kordek from 23.02.2018:

LISK (LSK) Relaunch | Interview with Lisk CEO Max Kordek
Watch this video on YouTube.
The Lisk rate (LSK) is currently (06.06.18 12:00) at 7.55 Euro per LSK. In the course of 24 hours this is a loss of almost 4 percent, in the course of a month a loss of 28.9 percent. Within a week, the share price recovered slightly – here it is up 0.52 percent.

Now also MailChimp: Marketing platform places itself against crypto currencies

After various social networks, MailChimp is now also taking a stand against crypto currencies and ICOs. The well-known marketing and newsletter platform would like to counter with it the excessive fraud attempts in the industry. However, there are more and more accusations that significantly more than ICO advertising is censored.

Discussions about crypto trader currencies via Mailchimp ok?

After Facebook, Twitter and Google, MailChimp is now also positioning itself against crypto currencies like this MailChimp is a solution that various companies use to manage newsletters. Using a web-based crypto trader platform, newsletters can not only be created, but also managed, analyzed and configured.

The SaaS company based in Atlanta is one of the most successful in the industry. In 2016, MailChimp was ranked 7th in the Forbes Cloud 100 list.

On February 29, MailChimp is said to have changed the Acceptable Use Poliy. In these changes, the company has stated that it will

“Companies involved in the process of purchasing, transaction, exchange, storage, marketing or development of crypto currencies, virtual currencies or other digital assets as part of an ICO are prohibited from using MailChimp to advertise these activities”.

In a nutshell: If someone wants to make money with ICOs or blockchain products, MailChimp will turn against them. In this way, the company does not want to turn against the blockchain, but only to prevent fraud, as they say.

MailChimp stressed to the magazine Futurism that a discussion about blockchain and crypto currencies does not fall under this new regulation. So if digital media were to send information about crypto currencies via MailChimp, that would be okay – as long as the digital medium is not involved in the above-mentioned activities.

The perception in the cryptoscene is different: Andreas Antonopoulos pointed out that two newsletters that did not advertise ICOs or stock exchanges had been censored in the meantime. Evan Van Ness, editor of the newsletter “the Week in Ethereum”, complained passionately about the censorship and accused MailChimp of hating the blockchain. The ETC Devteam and Cryptocurrency Jobs also complained of censorship of their newsletter.

Fraud prevention or Web 2.0 vs Web 3.0?

As already written elsewhere, various fraudulent ICOs measures were to be expected. Surely no one would miss the hundredth advertising bot on Facebook, which fills the comments with “Anyone as excited about Crypto as I am? Facebook already showed, however, that such bans can be enforced very broadly, so that even reasonable information services have a hard time with sponsored posts.

MailChimp’s move is even more radical than the censorship of Facebook or Google. In the latter cases there is no radical censorship. The content can still be found on the social network or via the search engine. MailChimp’s policy, on the other hand, is a step in the direction of censorship.

Since various companies of integrity in the blockchain sector have meanwhile suffered from the censorship measures of the above-mentioned companies, some see behind it an attack by centralised Web 2.0 on decentralised Web 3.0. Such accusations cannot be dismissed completely, but it is still too early for such accusations.

In any case, it is clear that a look at alternatives to the companies mentioned is advisable.

Blockchain Ecosystem Singapore: What Remains After the Blockshow Asia

We travelled to Singapore for you to the Blockshow Asia conference to learn more about the Blockchain adaptation in Asia and to see what the large-scale Blockchain conference is really about.

We were invited by Cointelegraph to report on the Blockshow Asia as a media partner on 29 and 30 November, which will not stop us from addressing criticisms in the following. The venue, the Resort World Convention Center, provided impressive premises, which Cointelegraph did not stage any less impressively – a dimension one is not used to from Europe.

ICOs put everything in the shade

It quickly became apparent that the event was dominated by one theme: ICOs. So after a short time we entered the exhibitor hall, where there were countless stands of blockchain start-ups that had exactly one goal: to win investors for their upcoming ICO.

We were disappointed in the hope of stimulating discussions about exciting blockchain solutions, as the participants present had more of a marketing background than an IT background. One exception was Victor Bonhomme, Full Stack Engineer at iExec, a French blockchain start-up that built a platform to monetise free computing capacity. The decisive difference to most other exhibitors, however, was that iExec has already carried out an ICO and can offer added value with an already functioning blockchain solution.

The presentations were also strongly dominated by CEOs, who were represented at the fair with an advertising portfolio. One reason why we only attended a few presentations and instead tried to meet interesting personalities. We had such a stimulating conversation with Allen Day from Google, for example, who is researching the topic of artificial intelligence and now wanted to find out about intersections on the topic of blockchain. Together with Dr. Michael Raumann, Founder/CSO of CryptoTec AG, we talked about blockchain applications in the real economy and how artificial intelligence can be integrated here in the future.

The block show was a voluntary compulsory event for ICOs and people with international networking ambitions. Those, on the other hand, who were looking for a technically demanding confrontation with blockchain technology could have saved their money.

Blockchain hotspot Singapore

Outside the conference, we met the scientist Simon Trimborn, who is researching blockchain technology at the National University of Singapore and is developing indices for crypto currencies, among other things. During the discussion, it quickly became clear that Singapore does not have to hide from Stanford or MIT from the USA when it comes to blockchain research.

One of the reasons for this is that the smallest state in Southeast Asia in terms of surface area offers much that fuels a blockchain ecosystem. As Asia’s second most important financial centre after Hong Kong, there is sufficient capital to ensure that investments can be made quickly thanks to deregulated and investment- or tax-friendly regulation. This environment, in turn, attracts the Chinese elite, which is forcing its way to Singapore with knowledge and capital and is establishing its place in universities and financial companies. Supported by the ICO ban in China, Singapore is also a refuge for blockchain innovations from China.

Furthermore, Singapore is probably the most western country in Asia. It is not for nothing that the cost of living in Singapore is considered to be one of the highest in the world. A high standard of living and English as an official language make it easy for any expat from the USA or Europe to gain a foothold here.

These are the reasons that attract well-known blockchain companies such as TenX to Singapore. It is advisable to keep a close eye on Singapore, because Singapore is the blockchain hotspot of Asia and this will certainly not change in the near future.