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Bitcoin Meets Zcash: Developers Test Tool for Trustless Trades

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An in-progress blockchain project could one day help users trade bitcoin for zcash without a trusted third party.

Created by zcash developers Jay Graber and Ariel Gabizon, ZBXCAT is a new command-line tool that developers can use to exchange the two cryptocurrencies.

With today’s bitcoin exchanges having a history of being vulnerable to hacks (leading to millions of dollars in customer losses), ZBXCAT uses a concept called “atomic swaps” to avoid the need to hold users’ funds.

Say Alice has bitcoin and Bob has zcash, and they want to trade the two. Rather than temporarily entrusting their cryptocurrency to a centralized exchange, atomic swaps would let them trade directly across blockchains. To ensure there is no cheating, both users would need to send the cryptocurrencies to each other by a certain time or the trade will fail.

Gabizon told CoinDesk:

“Basically, it seems a useful thing to me: To be able to exchange bitcoin and zcash directly with someone I don’t know without having to trust them. Especially, given recent technical problems some exchanges are having.”

In its current state, ZBXCAT users need to download bitcoin and zcash full nodes (with their full transaction histories), and use the command line to instruct the network to make a trade.

However, with the tool still not finalized, ZBXCAT’s developers advise using “test” coins rather than the real thing for the time being.

The project is the latest in a line of similar ideas for experimental exchange-free trading.

Charlie Lee, the founder of litecoin, has previously said he is committed to atomic swaps, once the Lightning Network is activated on the cryptocurrency’s network. The MimbleWimble project also plans to usher in cross-chain atomic swaps, as well as other features.

“I can’t predict how it will be used exactly, I hope it will be integrated in other services in interesting and unexpected ways,” Gabizon concluded.

SegWit’s Slow Rollout: Why Bitcoin’s Capacity Hasn’t Seen a Sudden Boost

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“Why do transaction fees appear unaffected?” asked one Reddit user.

Another posted an image of a man poking the word “SegWit” with a stick, saying, “C’mon, do something…”

Such comments, while sparse, have been indicative of the reaction some more casual bitcoin users have so far had to the activation of Segregated Witness (SegWit), a code change that went live on bitcoin last week after nearly two years of testing and debate.

Though the much-hyped technology is well-known for two things – boosting average block size and paving the way for a secure Lightning Network – when SegWit finally activated on August 23, the code change didn’t immediately make these benefits possible.

One caveat that some might have missed is that it will likely take some time before the technology has a noticeable impact on network capacity.

Even most “block explorers” (blockchain analysis tools used for browsing blocks and transactions) have yet to support SegWit, making it difficult to track just how widely used the new technology is so far.

SegWit.party tracks how many SegWit-style transactions are in each block, showing they have moved from roughly 0.5 percent of transactions to 1 percent per block over the technology’s six-day lifespan. Meanwhile, another graph shows the total block size.

SegWit hasn’t had any visible impact so far.

OXT.me, from bitcoin data analysis expert going by the moniker LaurentMT, tracks the total number of SegWit transactions made per day. Plus, it tracks some more granular data, such as the new “virtual block size.”

As evidenced by these graphs, too, there’s still a lot of room for adoption.

The role of businesses

So, why hasn’t the increase been bigger? Well, it’s up to bitcoin users and companies to incorporate and actually use the technology. Since most bitcoin users depend on a software wallet to send transactions, they need those wallets to add the technology before they can use SegWit.

And while as many as 141 bitcoin companies have at least pledged to do so in the future, their technology isn’t necessarily live. Some wallets are waiting to add support for the technology for security reasons; developers argue that it’s safer to test the technology further once it’s live before they open it up to users.

That’s why the wallet attached to bitcoin’s most popular full node implementation, Bitcoin Core, doesn’t support SegWit.

“Using SegWit before the activation is buried is unsafe and could lead to funds loss if miners behave maliciously,” Blockstream CTO Greg Maxwell, a leading contributor to Bitcoin Core, argued, adding that leaving it out of the wallet’s graphical interface was an “intentional decision.”

However, he went on to add that developers can use the command line to make SegWit transactions today.

Consumer and business wallet support is trickling in. Wallet infrastructure startup BitGo (which supports a number of exchanges and wallets) is in the midst of making changes, while consumer wallets Ledger and Trezor already support the technology.

Others might not be far behind.

Watch and weight

The question, though, is how quick will they be? Where this all might get problematic is it remains to be seen how long various network participants will give the network to adopt SegWit before flaring up old debates.

One issue is how easily manipulated bitcoin’s capacity issues have been. Even after months of campaigning on the idea that SegWit would redefine how block size is calculated, there remains a contingent that believes this metric is key to scaling.

However, with SegWit, different transactions types now have different “weights.” Old, non-SegWit transactions have a weight of 4. So, if a block was filled with only non-SegWit transactions, the block size cap is still 1MB. Meanwhile, SegWit transactions have a weight of 0.25. So, if every transaction in a block was made up entirely of SegWit transactions, the block size could reach a maximum of 4MB.

As for what this means in calculating a new block size, that depends on how many SegWit transactions users make. Even long-term, there’s likely to be a mix of SegWit and non-SegWit transactions.

Some developers anticipate an average block size of about 1.7MB. Others argue that because of miner incentives, it could average out to about 2MB. Further, there are those who believe if all transactions migrate to the standard, 4MB is possible.

But, frustrated by years of inactivity, some network stakeholders may view the changes as too slight to spur bitcoin’s continued growth.

Already, some bitcoin businesses are floating this argument, backing a controversial plan to hard fork the network again in November to increase the hard-coded block size. (Its lead developer, Bloq CEO Jeff Garzik, has already set the stage for what could be a full-blown offensive using this argument in the coming weeks and months).

Looking ahead, the charts above might prove to be a key battleground. While SegWit remains in a grace period, with users hoping adoption will increase, it remains to be seen how likely this calm will persist, and if more debates will follow.

SEC Warns Public Companies Are Using ICOs to Pump Stocks

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The US Securities and Exchange Commission is warning investors about the risk of public stock scams that use cryptocurrencies as a promotional tactic.

Published earlier today, the SEC investor alert primarily focuses on cryptocurrency-themed promotions from publicly traded companies, rather than startups or project teams who aren’t listed on an exchange or over-the-counter marketplace. The agency specifically highlights the promotion of initial coin offerings (ICOs), in addition to general cryptocurrency releases, as potential warnings signs for investors.

The SEC said in its alert:

“Fraudsters often try to use the lure of new and emerging technologies to convince potential victims to invest their money in scams. These frauds include ‘pump-and-dump’ and market manipulation schemes involving publicly traded companies that claim to provide exposure to these new technologies.”

Indeed, the SEC has ordered stock trading freezes for a number of companies, including three in the past month alone. Whether the agency is pursuing some kind of concerted effort remains to be seen.

As CoinDesk reported late last month, the SEC unveiled the results of its investigation into The DAO, including its determination that tokens sold in conjunction with the failed ethereum-based funding vehicle constituted securities. What’s more, the agency indicated that other token sales may fall under this definition as well.

Since that release, other securities regulators, including those in Canada and Singapore, have issued similar statements as well – in effect stating that some tokens are subject to regulations while others may be not.

Commenting on today’s release, Peter Van Valkenburgh, director of research for the nonprofit advocacy group Coin Center, called the SEC’s move “very reasonable and measured,” framing it as part of the wider process that began in July.

“This kind of continue in the vein of the SEC taking very reasonable and measure d steps to deal with investor protection issues around ICOs,” he told CoinDesk. “It’s not like a bombshell just dropped and they went after a giant and successful open-source project. Quite the opposite, this is pretty narrow.”

Other commentators see today’s release as only the next leg in a longer process.

“We are seeing much more focused interest in digital assets by the SEC, including the recent DAO Report of Investigation and trading suspensions,” said Perianne Boring, president of the industry trade group Chamber of Digital Commerce. “The SEC has become an aggressive player in enforcement in the digital currency and token space, particularly in the area of ICOs,” she said, adding:

“We anticipate more to follow from the SEC.”

East Asia’s “Ghost Month” Scare May Explain Flat Trading in Certain Altcoins

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The digital currencies NEO, OmiseGo and TenX are experiencing slight or no movement during trading as of late August 2017 when compared to previous weeks or months. Such a situation is believed to be due to the start of the “Ghost Month” in countries where most of these cryptocurrencies are headquartered and whose investors are mainly based.

In 2017, the Ghost Month runs from Aug. 22 to Sept. 19. The countries which have a “ghost month” include China, which is the base of NEO, Japan, which is the home nation of OmiseGo, and Singapore, which is the headquarters of TenX. People in these countries have a belief that it is a particularly bad time to invest in anything during the month.

Annually, traders in the stock market in these countries take extreme precaution when it comes to their investments during the month of August, as it is typically the ‘worst’ month, CNBC reports.

“In fact, many stock market traders are also advised not to invest into anything with their money during this month as it is considered bad luck.”

Hungry ghost

Based on traditions in China, particularly amongst Buddhists and Taoists, the Festival of the Hungry Ghost happens during the 7th month of the year.

During the event, it is believed that the gates of hell are opened and the spirits living there go out and roam the earth.

According to superstition, everyone should focus on celebrating or honoring the spirits that are visiting the earth during this time.

“Coincidentally, most cryptocurrencies with heavy investors are mainly from Asia, and the trading performances of the three digital currencies are generally flat, with the situation is expected to continue until the “Ghost Month” passes.”

A slow month does not necessarily equate to a stock or a cryptocurrency’s intrinsic value. In fact, many long term holders may take advantage of such a situation to slowly accumulate while prices are down.

Venezuelan Bitcoin Miners Turning to Ethereum After Government Crackdown

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An increasing number of Venezuelans are shifting to mining digital currencieslike Bitcoin so that they can afford to buy their basic needs and survive due to the current hyperinflation being experienced in Venezuela as of late August 2017. Another reason for the shift is the affordability of mining due to the low cost of electricity in the country.

According to a report by The Atlantic magazine, Venezuela continues to suffer its worst meltdown in its history, with skyrocketing inflation and very short supply of basic necessities. To survive the situation, a growing number of people have taken to Bitcoin mining as it becomes more affordable than most of the basic goods in the crisis-hit nation.

Bitcoin mining

In Bitcoin mining, miners perform complex computations that lead to the creation of new links in the Bitcoin Blockchain using computer hardware, which needs a large supply of power during the process. In return for their work, miners are rewarded with a new Bitcoin token. Blockchain is the massive decentralized ledger technology that underpins Bitcoin.

Based on the report, a Bitcoin miner who runs several Bitcoin mining devices in Venezuela can earn around $500 per month. In the country, the amount can already feed a family of four and buy basic goods like baby diapers or insulin from abroad.

Government crackdown

As a result, government authorities have started to crack down on mining operations because it is considered illegal in the country.

Venezuelan police are arresting miners on “made-up” charges due to the absence of cryptocurrency laws that regulate mining. The crackdown, however, has prompted many miners to operate very discreetly, while others are reportedly turning to Bitcoin’s rival Ethereum and Zcash for bigger and much more sustainable profits.

Major Payment Processor Files Patent for Blockchain-based ATM Network

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China UnionPay has filed a patent for a system that utilizes Blockchain technology to connect a network of automated teller machines (ATMs).

Under the concept, a group of ATMs serves as nodes within a Blockchain-powered network. There they share transactions via a distributed database, maintaining a high degree of security and uptime.

According to published documents, the system is intended to ensure the security of transactional information despite using only a limited amount of data from a single point of communication that could be vulnerable to attack or disruption.

Part of the patent application reads:

“According to the present invention, the server can synchronize all the information directly as the monitoring node, facilitate the aggregation of the transaction information, and perform the predetermined processing on the transaction information by using the asymmetric encryption algorithm, thereby ensuring the security of the transaction information.”

However, it is not yet clear if China UnionPay will adopt the patented system for commercial applications.

Other initiatives by China UnionPay on Blockchain

China UnionPay, which is the leading payment card network operator in the world, has advanced several Blockchain projects in the past. In September 2016, the company partnered with technology firm IBM to develop a Blockchain-based system that enables customers to trade loyalty points with one another.

In his statement on the project, China UnionPay’s Electronic Payment Research Institute director He Shuo told then that the initiative is a “breakthrough” in the electronic payment industry:

“The joint research efforts between China UnionPay E-payment Institute and IBM Research has enabled the successful exchange of bonus points among banks using Blockchain technology, which embeds trust into transactions.”

Vietnam Is Preparing to Legally Recognize Bitcoin

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Vietnam’s prime minister has approved a plan that could see the country formally recognize bitcoin as a form of payment by 2018.

According to regional news services VNA, Prime Minister Nguyen Xuan Phuc has tasked Vietnam’s central bank as well as the Ministry of Finance and the Ministry of Public Safety, to draw up a legal framework around cryptocurrencies.

An assessment for how the government should approach this process is due to be completed by August of next year. Once that is concluded, it’s expected that drawing up the legal documents required to recognize cryptocurrencies under a regulatory framework will be completed by the end of 2018.

In tandem, officials will also begin work on a tax treatment for cryptocurrencies. According to VNA, a system governing how cryptocurrency users will be taxed in Vietnam is slated to be in place by June 2019.

If approved, the move would signal that leaders in Vietnam are moving away from the more cautious viewpoint expressed in 2014, when central bank officials warned consumers about the risk of cryptocurrencies.

Tether Case, Explained

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1.

What is Tether?

Tether is a cryptocurrency that represents real currencies in a Blockchain market.

The project was founded in November 2015. It has two tokens USDT and EURT, which were made as analogues of USD and EUR in a Blockchain world. These cryptocurrencies are closely connected with the exchange Bitfinex. At first, Tether was based on the Bitcoin Blockchain system, but in June 2017, the transition to Litecoin was declared.

Since May 2016, Tether capitalization increased rapidly. At the end of August 2017, it amounted to approximately $320 mln.

During 2016, there were no significant changes in the circulation. However, since April 18, 2017, Bitfinex has been rejecting transactions with the fiat currencies. The same happened with Tether.

And although everything seems to be great for the company, there’ve also been some issues involving the official site; a redeem of tokens, withdrawals, liquidity and an emission.

2.

What’s wrong with the official site?

The information from different pages contradicts each other.

Here is the information given on the main page of the official site.

Here is the information given on the Terms of Service page.

The thing is, Tether is not a cryptocurrency that can be used as money. It is not backed. And that is why the company cannot guarantee any transactions with their tokens.

3.

What’s up with a redeem of tokens?

Bitfinex and Tether have experienced some issues with the banking system.

In April 2017, Tether underwent a cut to wire transfer services from Taiwanese banking partners. Later that month it was international customers who found their wire deposits frozen.

Here is the official statement:

“Since April 18, 2017, all incoming international wires to Tether have been blocked and refused by our Taiwanese banks. As such, we do not expect the supply of tethers to increase substantially until these constraints have been lifted.

For customers with bank accounts outside of Taiwan, we are diligently pursuing alternate funding channels. New banking corridors are in the process of being established, and we are speaking with integrators of USDT about the possibility of intermediate customer redemption processes. Until then, we are asking our customers not to send any additional incoming wires until we can provide a reliable method of receiving funds.”

As Bitfinex filed a lawsuit against Wells Fargo, after the latter allegedly prohibited to transfer its funds internationally, Tether signed in on the suit as well.

 

The lawsuit was dropped later without any official statements.

But for now, the question remains open, whether Tether tokens can be redeemed.

4.

What about tokens liquidity and emission?

Without any audit information, it cannot be stated for sure.

Despite all the issues described above, the Tether capitalization was growing. It has been growing rapidly, so it means investment flow. But where does it come from? As the official site says reserve holdings are subject to professional audits. However, Tether does not give any names of auditors or companies.

Tether cannot use bank facilities, so where does the company hold its money? Why is the information not known for token holders? What is the real circulation of tokens? The Blockchain community has more questions than answers. Emission can be excessive, which means unbacked tokens.

The pair USDT/USD is presented on only two exchanges: Kraken and Bitfinex. Bitfinex fixed the price of one USDT at a rate of one USD. The volume of these transactions is tiny, so the question about the liquidity is open.

5.

What’s going to happen with Tether?

Nowadays there are millions of Tether tokens without backed value.

These tokens can be used to buy some other cryptocurrencies. If too many USDT tokens are used, it will impact the price of Bitcoin and altcoins. Few connections with banking system may raise more and more questions about Tether activity. The investigation into BTC-e can also touch upon Tether. All of this raises more question than we can find answers to.
It seems like the company really needs to make an effort to clarify their activity.

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SEC Suspends Trading of Publicly Listed Bitcoin Firm

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The U.S. Securities and Exchange Commission (SEC) has issued a temporary suspension of First Bitcoin Capital, a publicly-traded bitcoin firm based out of Canada.

According to an SEC statement, the suspension began at 9:30am EDT on August 24 and will last until 11:59am on September 7. First Bitcoin Capital was a publicly-traded corporation (Symbol: BITCF), and its share price had risen more than 6,000% in 2017. At the time trading was suspended, the BITCF share price was $1.79.

Citing the Securities Exchange Act of 1934, the SEC chose to suspend trading due to concerns about First Bitcoin Capital’s assets and capital structure:

The Commission temporarily suspended trading in the securities of BITCF because of concerns regarding the accuracy and adequacy of publicly available information about the company including, among other things, the value of BITCF’s assets and its capital structure. This order was entered pursuant to Section 12(k) of the Exchange Act.

According to the company website, First Bitcoin Capital is involved in several different cryptocurrency projects, including a mining group, a bitcoin ATM and check cashing service designed for cannabis dispensaries, and a bitcoin exchange. However, several of the project websites contain nothing except for a contact form.

Following news of the SEC suspension, Bronstein, Gerwitz & Grossman, LLC–a corporate litigation boutique with locations in New York, New Jersey, and Los Angeles–released a shareholder alert announcing an investigation in to potential claims on behalf of purchasers of BITCF shares. According to the announcement, the law firm specializes in the “aggressive pursuit” of class action security litigation and securities arbitration.

First Bitcoin Capital did not immediately respond to CCN’s request for comment.

SEC Eyes Cryptocurrency with Closer Scrutiny

The cryptocurrency ecosystem has come under increasing scrutiny from the SEC in recent months. In July, the SEC released an investigative report concluding that DAO tokens constituted a security, and that, by extension, “U.S. securities laws may apply to offers, sales, and trading of interests in virtual organizations.” For this reason, Filecoin restricted its record-setting initial coin offering (ICO) to accredited investors. Other ICOs have attempted to skirt securities regulations by prohibiting U.S. investors from participating. However, most investors are savvy enough to use a VPN to bypass IP restrictions, and it is not clear whether IP blocking is enough to constitute regulatory compliance.

Canada Looking To Classify Digital Currencies As Securities

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In studying a number of cryptocurrencies and upcoming ICOs, Canadian authorities have said that the offerings are similar to the sale of securities and as such should have to abide by the tough rules that exist around them – or seek exemptions.

Legal grey area

While digital currencies boom and ICOs pop up with huge regularity across the globe, governments and regulators are trying to incorporate them into an existing legal framework.

Regulators are trying to keep up with the growth in order to create rules to govern them within their borders, while also not stifling the innovative funding model.

The Canadian Securities Administers, an umbrella group of provincial watch-dogs, has noted that any token whose value is tied to future profits or success of a business should be considered a security.

This obviously seems to encapsulate ICOs whose value is indeed set and determined by future profiteering and success.

The regulators said in a statement:

“With the offerings that we have reviewed to date, we have in many instances found that the coins/tokens in question constitute securities for the purposes of securities laws, including because they are investment contracts.”

Ire of the fintech community

The statement released by the regulators has been labeled as unclear and a little ambiguous, although full of threat and menace.

It has prompted some of Canada’s leading fintech executive to criticize and seek clarity from the Canadian Securities Administrators.

“There still is a lot of gray area in terms of the guidance on when a cryptocurrency or token would be a security,” said Daniel Fuke, a partner in the securities and M&A group at Fasken Martineau.

“It would be nice if we could know from CSA what they were thinking in terms of some of the sub-considerations of the securities law test.”

Pressure from the South

South of the border, in the US, their securities authority already made a big call when it announced that Blockchain companies must obey federal laws because of the DOA incident.

In essence, ICOs would be controlled by these securities laws unless a valid exemption could apply.

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