Everything you need to know about bitcoin
What is Bitcoin?
If you’ve heard of cryptocurrency, then you’ve almost certainly heard of Bitcoin. Founded in 2009, Bitcoin was the very first decentralized cryptocurrency. A software developer, by the name of Satoshi Nakamoto, is said to be the creator of Bitcoin. Unlike fiat currency, bitcoin isn’t controlled by any central authority. Created and stored electronically, bitcoins are produced by computers around the world. These computers use software to solve increasingly complex mathematical puzzles, with solutions rewarded in bitcoins. Much like regular currency, bitcoin can increasingly be used to purchase goods and services electronically.
Bitcoin offers a number of advantages to fiat currency. Aside from being decentralized, it’s very easy to buy bitcoin and set up a bitcoin wallet. There’s a level of anonymity to bitcoin, since addresses are not linked to personal information. Transparency is offered through the blockchain, which is a sort of digital ledger. This database allows you to see all of the transactions on the Bitcoin network and how much Bitcoin a person has in their wallet, without knowing their identity. Bitcoin and blockchain transactions are quick and cheap, in comparison to those offered by banking services.
While many other cryptocurrencies have been created since then, bitcoin has remained the most popular option and continues to dominate the crypto market today. Most people who buy bitcoin, and other forms of cryptocurrency, do so as an investment. This is hardly surprising, as the price of bitcoin has gone from a few cents per coin in 2010 to over $7,500 per coin in late 2017. At the time of writing, the market cap of bitcoin is $150 billion. Needless to say, bitcoin has attracted increasing attention over the years. Having a bitcoin investment strategy can make all the difference long-term.
Is it legal?
The legality of bitcoin really depends on where and how you use it. It’s certainly something of a grey area, due to the lack of regulation in the cryptocurrency industry. As such, the legal status of Bitcoin varies from country to country. Because it’s often undefined or changing in different countries, it’s important that you take the time to check this important information.
As of November 2017, Bitcoin is illegal in the following countries: Bangladesh, Bolivia, Ecuador, Kyrgyzstan, and Nepal.
Why would anyone want to ban bitcoin? Well, governments have concern over Bitcoin and other forms of cryptocurrency because of its ability to be used anonymously. While most people who buy, hold, and spend bitcoin do so with perfectly legal intentions, there are some who have used it for money laundering and other illegal activities. Perhaps the best example is Silk Road, a now defunct online marketplace that became infamous for the selling of illegal drugs.
Buying and selling
Buying and selling bitcoin is increasingly easy thanks to the growing number of online exchanges. The biggest bitcoin exchanges are available in most countries worldwide, but be sure to check the legality of bitcoin in your country before buying. On a Bitcoin money exchange, you can also learn how to trade. We recommend you take the time to do this rather than using a bitcoin bot, which is likely to be unreliable.
Here are some of the most popular Bitcoin exchanges to consider:
- Binance: On Binance, you can buy Bitcoin, Binance Coin and many other coins. In fact, there are many different cryptocurrencies available. It’s known for being quick and offering relatively low fees.
- Bitfinex: The largest bitcoin exchanges by trading volume, Bitfinex offers plenty of advanced trading features. Fees are relatively low, as compared to many exchanges.
- Bitstamp: Bitstamp is a popular fiat to bitcoin exchange. It has a simple user interface and high trading volumes. There is good support offered in Europe.
- Bittrex: One of the larger cryptocurrency exchanges, Bittrex offers most major cryptocurrencies. Setting up a basic account is very easy and customer support is decent.
- CEX: Beginners will like CEX, since it has an easy-to-use interface. You can also find a nice range of trading features, if that’s of interest to you. Overall, it’s a reliable option.
- Coinbase: Coinbase is probably the most beginner-friendly Bitcoin money exchange around. It’s available to users in 32 countries and offers a range of payment methods.
- GDAX: Operating all over the world, GDAX offers good liquidity and competitive fees. It’s run by the same company that owns Coinbase, but offers lower fees.
- Gemini: Gemini offers fairly quick account verification as well as comparatively low fees. Customer service response time is also quicker than many other exchanges.
- HitBTC: Relatively low fees and a solid trading platform make HitBTC an option to consider. Bitcoin and other coins are available for trading on this platform.
- Kraken: Kraken is a popular option in Europe, thanks to low transaction fees and free SEPA deposits. It’s available in most countries and offers plenty of features for bitcoin security.
If you still need help finding the best cryptocurrency exchange for your location, take a look below:
USA: If you’re based in the USA, then you should have no problem buying bitcoin. You can use most exchanges. In terms of bitcoin for beginners, Coinbase is recommended as it is easy to use. For low fees, try Bitfinex.
UK and Europe: If you’re based in the UK, or elsewhere in Europe, you’ll want an exchange that offers easy SEPA transfers. As such, Bitstamp and Kraken are good options to consider. Coinbase also offers a service in Europe.
Canada: There are fewer options available to those buying bitcoin in Canada. One of the most popular options is QuadrigaCX. Additionally, Canadian dollars can be used on Coinsquare.
Australia: Like most countries, Australia can use Coinbase for buying bitcoin. However, for trading back to AUD, take a look at BTC Markets or CoinJar.
India: Located in Delhi, Coinsecure is one of the more established bitcoin exchanges in India. Unocoin and Zebpay are also popular options.
Singapore: Aside from Coinbase, Singapore’s main options when it comes to buying bitcoin are CoinHako and Luno. In fact, CoinHako is based in Singapore.
It’s also possible to buy and sell bitcoin at a Bitcoin ATM. Currently, the vast majority of Bitcoin ATMs are located in the USA, and there’s a good chance that the Bitcoin ATM locations aren’t near you. However, if you are lucky, a Bitcoin ATM withdrawal is a good way to access your newly purchased bitcoin.
Once you’ve purchased your bitcoin, it’s important to keep it safe. It’s generally considered unsafe to keep your cryptocurrency on exchanges, as there’s a risk of your bitcoin being hacked. For this reason, you’ll want a bitcoin wallet which makes it easy to check how much bitcoin you have. There are several different types of bitcoin wallets, ranging from desktop to paper. While most wallets are just for one particular cryptocurrency, some allow you to store other crytocurrencies as well. Read on to find out about each of the wallet options, and how to go about choosing one that’s right for you.
How to compare and choose a bitcoin wallet?
A btcoin wallet is the combination of a public address and a private key. At first, you may feel a little overwhelmed with the number of bitcoin wallet options. However, it’s really a good thing to have so much choice. The type of bitcoin wallet you choose depends on which features most important to you. For convenience, you may want a web wallet, or one on your phone, for checking your bitcoin by mobile device. On the other hand, the bitcoin security offered by a hardware or paper wallet may be of greater value.
What is a bitcoin desktop wallet?
Quite simply, a bitcoin desktop wallet is one that you can access from your desktop computer. They store the private keys to your bitcoin information on your hard drive. Desktop wallets are available for Windows, MAC OSX, and Linux. One of the most popular is the Electrum Bitcoin Wallet which, while not particularly pretty, does the job required. It’s very secure and has a number of interesting features.
What is a bitcoin paper wallet?
A bitcoin paper wallet is just as it sounds. It’s the transferring of digital coins onto physical paper via a printer. The advantage of paper wallets is that they are offline and safe from malware. You are also fully in your control, as opposed to wallets that are operated by a third party. However, paper is obviously susceptible to damage. It’s also vulnerable to theft, so it’s important to place your paper wallet in a very secure location.
What is a bitcoin mobile wallet?
Some people choose to have a bitcoin mobile wallet in order to check their bitcoin amount and transactions while they’re on the go. When it comes to accessing your bitcoin accounts by mobile device, there are mobile wallets available for Android and iOS. They run as a bitcoin app on your smartphone. A popular mobile wallet for both Android and iOS is BreadWallet, which is known for its simplicity. BreadWallet is great for beginners.
What is a bitcoin hardware wallet?
Another option available to you is storing your bitcoin, or at least the private keys, on a hardware wallet. Unlike the other types of bitcoin wallets, hardware wallets aren’t free. However, the price may be worth it if you have a substantial amount of bitcoin. Hardware wallets cannot be hacked as they are secure, offline devices. There’s hardly an abundance of choices. Two options to seriously consider are the Ledger Nano S and the Trezor Bitcoin Wallet.
What is a bitcoin web wallet?
Also referred to as online wallets, bitcoin web wallets store your private keys online. This allows you to access your web wallets anywhere, on any device. Some of these link to mobile and desktop wallets, which certainly offers convenience. However, leaving your private keys in the hands of a third party is risky, particularly if you hold a large amount of bitcoin, which could put you at greater risk for a bitcoin hack. If you’re still keen on the convenience of them, take a look at the web wallet offered by GreenAddress, which offers more security features.
What is a bitcoin brain wallet?
A brain wallet involves you memorizing the private keys of your bitcoin; the private key is never written down. Naturally, this is much more secure than leaving physical evidence of your private key, such as on paper or a web wallet. However, the risk is that you may forget the private key and lose your bitcoin forever. The security of your funds is dependent on the strength and complexity of the passphrase chosen – the longer the better, as long as you can remember it!
What is a bitcoin private key?
A Bitcoin private key is a secret, alphanumeric number which is randomly generated when you create a wallet. It allows you to spend and send your bitcoin. A private key is not to be confused with a public address, which is what you use to receive funds. Your bitcoin private key needs to be kept in a safe and secure location. That may be on a piece of paper, on your hard drive, or on hardware. For maximum security of your bitcoin information, your bitcoin private key is better off with you than with a third party, such as a web wallet.
Debit card options
How to compare and choose a bitcoin debit card?
One bitcoin payment system that lets you spend your bitcoin, as you would spend fiat currency from a regular debit card, is the bitcoin debit card. It works by drawing bitcoin directly from your bitcoin wallet. The advantage of this is that you can spend your bitcoin in more places, since bitcoin debit cards are typically VISA cards. You’re no longer limited to buying from a store that accepts bitcoin, or from having to convert your bitcoin to a fiat currency in order to buy things. Some of the main bitcoin debit cards to explore are Wirex, Cryptopay, and Xapo.
It’s important to take the time to compare and contrast the various bitcoin debit cards. When comparing and choosing a bitcoin debit card, consider the following points:
- Fees: Unfortunately, there are fees associated with bitcoin debit cards. This may include a delivery and activation fee, as well as ATM and foreign transaction fees.
- Security: If you’re spending bitcoin from your bitcoin wallet via a debit card, you want to know your wallet is safe. Be sure to check security features available.
- Customer Service: There’s nothing more frustrating than slow support. Read reviews on customer service to make sure the customer service is quick, reliable, and friendly.
- Apps: The ability to see what you’re spending is undoubtedly convenient. Some bitcoin debit cards offer you a bitcoin app for this. Both Android and iOS options are usually available.
How to trade
How do I trade bitcoin?
It’s one thing to buy bitcoin and hold it long-term, and another to trade bitcoin on a regular basis. Trading bitcoin can be extremely profitable, but it’s not without risk, due to the overall volatility of cryptocurrency. In order to trade bitcoin, you need to find a bitcoin money exchange. Earlier, we mentioned some popular bitcoin exchanges. Take a look at these and research available locations, transaction fees, liquidity, reliability, and overall safety and security. In particular, Bitfinex and Kraken meet most of these requirements. Coinbase is much easier to use than Bitfinex and Kraken, but the fees are higher.
How does it work?
How do bitcoin transactions work?
In the case of bitcoin, everything is very transparent. Bitcoin transactions are digitally signed for security. Everyone on the bitcoin network can see a transaction, and transactions between two addresses are stored on a vast public ledger, known as the blockchain. By looking at the blockchain information, you can see the information regarding the block and balance of a particular bitcoin address. While this isn’t very private, a degree of anonymity is offered since no personal information is linked to a bitcoin address.
In order to send bitcoin, you need a bitcoin address and a private key. These are generated when you create a bitcoin wallet. When you send bitcoin, you use your private key to sign a message with a transaction input in order to create a record of which address the Bitcoin is coming from. You also include a transaction output, which is the recipient’s bitcoin address, and the amount you want to send. The bitcoins are then sent out onto the bitcoin database and verified by miners before being put on a transaction block and solved. Miners are paid transaction fees and a subsidy of the newly created coins.
How does bitcoin mining work?
We’ve just briefly touched on transactions being verified by miners. Now we’ll explore bitcoin mining a little further. Without bitcoin mining, we wouldn’t have bitcoins. In order to mine bitcoin, miners use special software to solve mathematical problems. Bitcoin data mining works much like mining for physical resources, such as gold, in the sense that it’s resource-intensive and increasingly difficult. It’s designed this way so as to control the number of blocks found by miners each day.
In order to be considered valid, individual blocks must have a proof-of-work, which is verified by other bitcoin nodes when they receive a block. A proof-of-work is a method used to ensure that time and money went into making a block. Not only does mining serve to create new coins, it also serves to verify the legitimacy of transactions. This prevents a person from spending the same bitcoin twice.
How do I become a bitcoin miner?
If you’re interested in mining bitcoin, you’ll probably want to take a look at setting up a bitcoin miner. The alternative is bitcoin cloud mining, which we’ll cover shortly. First, you’ll need to consider hash rate. This is the number of calculations your hardware can perform each second, as it attempts to solve the mathematical problems put before it. The higher your hash rate and bitcoin mining power, the more likely you are to solve a transaction block. Second, it’s important to consider energy consumption. Read further and you’ll find out more about this in relation to bitcoin mining cost and profitability.
Once upon a time, you would have been able to mine with a Bitcoin CPU miner. Nowadays, the main bitcoin mining problem is that you’ll need to spend more money on an ASIC bitcoin miner for mining activities to be worth it. Based on price per hash and electrical efficiency, you’re best choices for hardware are the AntMiner S7 or S9, depending on your budget. Once you’ve purchased your bitcoin mining hardware, your next step is to download a program for mining bitcoin. The two most popular are CGminer and BFGminer. You should also consider EasyMiner, if you’re looking for a more user-friendly experience.
What are bitcoin mining pools?
In order to make money mining bitcoin, you’ll probably need to join a bitcoin mining pool. A mining pool consists of a group of miners who pool their resources together. This increases your odds of being rewarded, but decreases your reward as it is shared with the other miners in the pool. You’re unlikely to get rich from a bitcoin data mining pool, but you will be rewarded on a more consistent basis. Most of the biggest bitcoin mining companies are located in China, due to the cheap cost of electricity there.
When choosing a bitcoin mining pool, you need to ask yourself a few questions. Consider the following:
- Pool Size: The bigger the mining pool, the more frequent the payout. However, the reward is then split between more miners.
- Reward Method: There’s a wide range of reward methods in crypto mining. This dictates how and when you’re paid. The most common are PPS and PPLNS.
- Fees: Most bitcoin mining pools charge fees. These can vary a great deal from pool to pool, so be sure to check to details regarding fees.
- Security: Choosing a mining pool that offers bitcoin security, as well as personal security, is of the utmost importance. For increased security, look to more established mining pools.
How does cloud mining of bitcoin work?
You don’t need a bitcoin miner of your own in order to get involved with mining bitcoin. With bitcoin cloud mining, you can avoid much of the hassle involved. Cloud mining means using shared bitcoin mining power, which is run from remote data centers. By buying a particular cloud mining contract, you’re essentially renting some of the available hardware to mine bitcoin.
The advantages of cloud mining are that there is no added electricity costs and no expensive mining equipment to deal with. However, a few issues to consider are that profits are lower and that most bitcoin cloud mining companies are scams. This makes finding the few good bitcoin cloud mining companies even harder. It’s very easy for someone to take your money, claim that they’re mining for you, and then not pay out fairly or at all. One of the few bitcoin mining companies to consider is Genesis Mining. This is a Hong Kong-based company which offers three different mining cloud contracts.
How do I calculate mining profitability?
First of all, it’s worth mentioning that bitcoin mining is highly competitive due to the existence of huge mining pools. The difficulty of mining is constantly increasing, so you should work out the costs to mining bitcoin to see whether it can be profitable for you. You can do this with a bitcoin mining calculator, which will let you enter the data of the bitcoin miner in order to see how long it will take for you to make a profit.
One of the key things to consider when it comes to the profitability of mining bitcoin, aside from the cost, is energy consumption. Mining cryptocurrency consumes electricity, which can be costly. Check the energy consumption of the hardware used, as measured in watts. If you’re using a bitcoin mining computer to run your mining hardware, you’ll also need to factor in its electricity consumption.
How do I accept bitcoin payments in my store?
If you have a business, you may wish to accept bitcoin payments. It’s easier than you think to install a bitcoin payment system. The easiest way to do this is simply place a sign on your store, whether it’s in your shop window or on your store’s website. Chances are, only a small number of people will want to pay in bitcoin. These customers can ask you for your wallet address in order to pay you using bitcoin.
When it comes to accepting payment, you have a few options. Customers can pay using hardware terminals, such as a bitcoin app or via QR codes. The user can then scan the code and press ‘spend’ in order to buy a particular item.
Bitcoin e-commerce services for merchants
Setting up your website’s bitcoin payment system is now easier than ever before. There have been a number of bitcoin e-commerce services springing up in recent years. Currently, the most established and popular options are Bitpay and Coinbase. One newer option in 2017 is Shopify. While there are other e-commerce services available, it’s recommended that you research them thoroughly before choosing them for your bitcoin store.
Your most comprehensive guide to stablecoins
The term stablecoin refers to any cryptocurrency coin or token pegged or backed by an asset with a relatively stable price, such as fiat currencies or gold. A stablecoin can be under control of a central entity, such as Tether (USDT), or a Decentralized Autonomous Organization (DAO), such as Dai, a stablecoin which is issued on the Ethereum network. Nubits is another stablecoin which is partly controlled by a DAO, but is also under control by a central authority, representing a hybrid issuance model.
A stablecoin is typically backed by a reserve asset that has the exact equal value of the coin/token. The reserve can be a fiat currency, a precious metal (e.g. gold), or a cryptocurrency. The issuer, whether it is a central entity, or under control of a DAO, should only issue an amount of stablecoins equal to the reserve they own. New coins can be issued only when the reserve grows.
How do we define stability?
What is stable? To be considered stable, a currency or asset’s value has to experience only minor fluctuations, such that its value remains relatively steady over time. Is bitcoin stable? As of yet, we have not seen bitcoin stable in terms of value.
Why do we need stablecoins?
Why are we seeing so much interest in stable crypto? The truth is that while the volatility of cryptocurrency values makes them a popular choice for those who enjoy high-risk investments, this volatility isn’t ideal for those who actually want to use their cryptocurrency. Until we start to see a stable BTC value, people are going to look for alternatives. A stable coin can be seen as an attempt to marry the best parts of digital currencies with the relative stability of real-world assets.
The four most common uses of stable cryptocurrency are as follows:
- To create stability in cryptocurrency trading pairs in forex-style trades. Tether (USDT) was frequently used for this purpose, though recent concerns about that currency (explained later in this article) has lead to many exchanges replacing it with other stable coin options.
- Professional investors and hedge funds can use stablecoins to diversify their portfolios in times of market instability. You’ll see institutional investors in the coming months and years trying to determine what is the most stable cryptocurrency to use for this purpose.
- Because a stablecoin has a steady and predictable value, it can be used for transactions as easily as a fiat currency. Those with an interest in seeing mass adoption of cryptocurrency see stablecoins as a natural step towards this goal.
- Similarly, their stable value makes stablecoins the ideal medium for recurring payments such as salaries and rent. The current volatility of major cryptocurrencies can make it difficult to use them for monthly payments, as the value can swing wildly from month to month. Stablecoins may be especially attractive to blockchain startups who want to make a statement by paying their teams in cryptocurrency.
Let’s take a look at some of the most popular stablecoins across the cryptoverse.
Tether (USDT) is a stablecoin that is issued by Tether Limited, which claims that each USDT is backed by one USD (often cited when making a stable currency definition). However, the company has never managed to provide audits for the token’s USD reserve. Most cryptocurrency experts believe that Tether Limited was printing millions of Tether that had no USD backup. The main objective of USDT is to facilitate exchange transactions between cryptocurrencies and fiat currencies with a rate pegged to the USD.
USDT is issued on Bitcoin’s blockchain via the Omni Layer Protocol. Tether Limited claims that each USDT is backed by one USD held in the company’s reserve, yet users cannot necessarily redeem them via the Tether Platform or partnering exchanges. USDT can be stored and transacted just like any other cryptocurrency. To transact and store Tether, users have to have an Omni Layer-enabled wallet such as Holy Transaction, Ambisafe, or Omni Wallet. USDT offers an alternative means to Proof of Solvency via introduction of a Proof of Reserves process.
The USDT Proof of Reserves system, the number of USDT tokens in circulation, can be checked on Bitcoin’s blockchain via the tools available on Omnichest.info. The amount of USD comprising the backup reserve can be proven via publishing the company’s bank account balance and undergoing periodic audits performed by professional auditors, who publish the financial transfer statement and the bank’s account balance of Tether Limited.
During the period between January 2017 and September 2018, the volume of circulating USDT rose from around $10 million to more than $2.8 billion. During the early months of 2018, USDT represented around 10% of bitcoin’s total trading volume, yet during the third quarter of 2018, it accounted for around 80% of bitcoin’s trading volume.
In June 2018, USDT was the tenth biggest cryptocurrency by market capital. Researchers and crypto experts proposed that a price manipulation scheme that exploited USDT, accounted for around 50% of the rise in bitcoin price during the fourth quarter of 2017.
To solve the problems associated with USDT, USDX was created to bridge the gap between cryptocurrencies and fiat. The USDX token is pegged to the USD via a novel logarithmic protocol, mitigating the risks that accompany the usage of USDT or other stablecoins.
USDX promotes stability of its value through its algorithmic central bank, which boosts and reduces the total supply of USDX tokens to match the value of USD in real time. A market price feed is delivered via Oracle Feed, which extracts price data from multiple exchanges. To boost transparency, exchange rates have to be accepted or dismissed via randomly selected token holders. Through this process, the system boasts a decentralized, trustworthy means to accommodate value indicators.
Despite the fact that USDX is not the only stablecoin that utilizes a transparent, elastic supply mechanism, its founders claim that it promotes superior decentralization and stability via its innovative algorithmic protocol.
TrueUSD (TrueCoin) was developed to solve USDT’s problems, as it is based on regular auditing, maximum levels of transparency, full backup reserves (collateral), and legal commitment to exchange TrueCoin tokens to USD whenever needed. The company plans to create stablecoins pegged to the Euro, Yen, precious metals (gold and silver), and other assets (real estate, stocks, etc).
While USDT is marked by a centralized and suspicious architecture, TrueCoin has partnered with a wide range of chartered banks and trusts to make sure that there is a transparent reserve of USD backing up the stablecoin. The strong legal architecture of TrueCoin represents a clear improvement upon the questionable nature of USDT. When you buy a TrueUSD token, you are legally an owner of one USD that is fully redeemable upon request.
Reliance on unrelated assets such as fiat currencies or altcoins poses a serious challenge when it comes to the development of stablecoins. Havven was established to provide the market with a decentralized payment network and a stablecoin solution that defies volatility. nUSD is Havven’s first nomin, which is a stablecoin pegged to the USD. Havven is planning to issue nomins for several fiat currencies, towards the end of 2018, including nGBP, nEUR, nJPY, and nAUD.
Havven’s system is based on a dual token design that offers a stablecoin solution that is on-chain, asset backed, and decentralized. Nomins are backed up by the value of the system’s collateral token, havven. The value of havvens originates from fees charged by nomin transactions, which reward holders of havven tokens for staking their tokens. Overall, nomins’ value is stabilized via nomin holders, who are rewarded with the ability to control the overall supply via the percentage of fees they receive. Havven, the company, holds 80% of the total supply of havven tokens in escrow, to shield the system against the aftermaths of price drops accompanying large scale sell-offs.
Havven is endorsed by a group of the world’s top cryptocurrency investors and funds, including AlphaBlock Investments, BlockTower Capital, and GBIC. Furthermore, the company has also announced future partnerships with some projects that will rely on nomins for providing a stable medium for transacting including intimate.io, MARKET Protocol, Swapy, and others.
Rockz is a stablecoin that is pegged to arguably the world’s most stable currency, the Swiss franc (CHF). For every Rockz token issued, one CHF is held as a backup reserve, legally enforceable by the company. 90% of the total CHF backup reserve of Rockz is held in paper form and stored in vaults secured high in the Swiss mountains. The remaining 10% is held in some of Switzerland’s most trusted and secure banks to promote liquidity.
Every holder of Rockz tokens has the full enforceable legal right to the corresponding amount of CHF. As such, in the event of the company declaring bankruptcy, token holders will have direct access to their funds secured in the vaults and/or Swiss banks.
Every month, Rockz’s holdings are audited via a trusted third party auditor, so that token holders are transparently assured that 100% of their investments are solidly backed by the CHF collateral. Rockz is a stablecoin that can help crypto investors ride out periods of extreme price drops without having to convert their crypto holdings to fiat and deal with high fees and taxes.
DAI has been issued to solve some of the problems associated with stablecoins, especially those pegged to fiat currencies. Mainly, whenever a stablecoin is backed by fiat currencies saved in bank accounts, manipulation and legal actions taken against the holder of the bank accounts will jeopardize the token’s value.
The creator of the MakerDAO coin solves this problem via the use of Ethereum’s smart contracts to promote stability. Instead of purchasing DAI coins, users create it after locking up their ETH in the Maker system. When a user doesn’t need their DAI coins any more, the CDP smart contract will return to them the same amount of ETH that was collateralized. To mitigate the problems associated with ether’s price volatility, DAI boasts an automatic liquidation process whenever ether’s price drops. The ETH locked up by the CDP smart contract is proactively auctioned off right before its price falls below the value of the DAI it backs up.
Basecoin’s approach to stablecoins is very innovative. In contrast to other stablecoins, the concept behind Basecoin is very simple. Basecoin’s value is pegged to either an asset or an index, such as the Euro, USD, Consumer Price Index, SP500, or others. Via continuous monitoring of price feeds, the total supply of Basecoins is automatically modified to offer a stable value.
Basecoin also relies on another pair of currencies; Base Shares and Base Bonds. These currencies serve as an economic incentive for holders of the token to adjust the token supply by exchanging their Basecoins for bonds, which opens the door to users to earn profits on their investments. Shares are issued whenever the supply has to be boosted. Both of these processes promote the stability of Basecoin’s value.
Even though Basecoin will be initially pegged to fiat currencies, this is planned to shift to an index offering promoting decentralization of the whole system, price stability, and complete independence from reliance on fiat for token pegging.
DigixDAO was the first company to issue a stablecoin pegged to gold. DigixDAO issued two tokens on Ethereum’s blockchain; DGX and DGD. One DGX token has the value of 1 gram of gold, and is backed up by real gold. DGD tokens offer their holders voting power that is proportionate to the amount of tokens they hold.
Seigniorage Shares is a non-collateralized stablecoin. It is intended to form a central bank via smart contracts that can continuously issue a currency with a value of $1 to control the overall supply. The smart contract is programmed to issue new coins and offer them for sale whenever the price skyrockets, until the price drops back down to $1. As such, the smart contract will generate profits. On the other hand, buying Seigniorage Shares coins takes place to reduce supply, which will lead to a rise in price.
Basis.io is an algorithmic stablecoin offering, designed to expand and contract supply, similar to the way central banks buy and sell fiscal debt. The intention is therefore to stabilize purchasing power, as when demand rises, the blockchain will create more Basis. This expanded supply is designed to then bring the Basis price back down. It’s important to note that there are no tangible assets with Basis, but the system creates incentives designed to build up a stable equilibrium for the currency. The more that Basis grows, the stronger its status as a potential medium of exchange, and the stronger its stable equilibrium. The company has raised $133M from an impressive list of top VCs.
This is another stablecoin which expands and contracts supply algorithmically, with a Stability Reserve intended as a decentralized guarantee of solvency. Most central banks maintain reserves via foreign currency and gold, and similarly, Terra’s Stability Reserve finances contraction of the Terra money supply whenever necessary. The company has the ambition of Terra becoming a global currency, and it is designed for mass adoption, with an eye to making everyday transactions possible. Terra has raised $32M from Exchanges and VCs.
Other stablecoins that are backed by crypto include Shelling Coin and TruthCoin. Digix Gold and OneGram are backed by gold. Kowala, Stably, Augmint, Carbon, Nubits, Gemini dollar, Paxos, Nushares and USDC are stablecoins pegged to the USD. GJY is a stablecoin backed by Japanese yen. EURS which is stable crypto backed by EUR
Even though some of the stablecoins discussed might seem promising, picking the winning horse among them can be quite confusing. Governments might have begun to accept cryptocurrencies, especially in that they support the shift towards a cashless society. However, the high volatility of crypto and the fact they are non-collateralized currencies are the main reasons that governments remain reluctant to accept mass adoption of crypto. As long as governments have to ask “How stable is bitcoin?” we can’t count on them to trust it. Stablecoins might be the answer to governments’ fears, but we have yet to witness the birth of a stablecoin that perfectly adheres to the principles of the blockchain technology: decentralization, full transparency, optimum security, and immutability.
This article is part of Cointelligence’s Stablecoin Week! For more information and opinions about stablecoins, see What does ‘stable’ mean? and Subjecting stablecoins to the duck test and A stablecoin fairytale.
An Overview of Security Token Exchanges Expected to Launch in 2019
The year 2018 has definitely witnessed the breakthrough of security tokens. The blockchain technology has permitted the tokenization of various forms of securities and assets. It is inarguable that security tokens have made it possible to tokenize almost everything that bears a value including equities, goods, real estate, fundraising, futures, credit, time based rentals, service leases, creative products such as music, art, and literature, credit, futures, and more.
Security tokens are revolutionizing security markets and mitigating most of the problems associated with conventional security trading. The blockchain technology promotes transparency as all trades and ownership records are stored on public ledgers which cannot be tampered with. Security tokens make it possible to tokenize securities, so financial assets such as stocks, bonds, futures, equities, swaps, and forwards can all be managed via distributed ledgers.
However, where will security tokens be traded? Presently available cryptocurrency exchanges are not equipped to support security token trading. Moreover, most exchanges don’t have the necessary licenses to permit the trading of securities. As such, licensed security token exchanges have begun to emerge to fill this gap and provide liquidity for the security token market.
Obviously, security tokens will attract an enormous share of Wall Street’s money during 2019. This expected shift has urged many venture capitalists and entrepreneurs to invest in the establishment of security token exchanges during the past couple of years. Throughout this article, we will take a look at security token exchanges that are expected to launch in 2019 and 2018’s fourth quarter.
Before we get started, let’s explore the most important security token exchanges that have been already established and are currently promoting liquidity of the security token market.
Current Security Exchanges
BTF is a crypto security investment platform that is only open to professional investors. To qualify to join BTF, investors have to have an annual income of over $200K, and should be able to invest at least $1,000 with them.
BTF is trying to establish itself as a market for blockchain-based projects that issue security tokens, shares, conventional bonds, futures, and other forms of tokenized securities.
By issuing their native token, BFT, they have taken a big step towards bringing together the highest net worth investors interested in tokenized securities, cryptocurrencies, and other forms of Fintech solutions.
tZero is the brainchild of Overstock which has been established to serve as an exchange for security tokens. The greatest thing about tZero is its user interface which is extremely friendly and easy to use. The platform boasts front-end integration of a risk management system, an order management system, an order matching engine, place orders, market orders, proprietary technology, and full support for security token trading.
tZero has partnered with Polymath to simplify the legal process of issuance and trading of security tokens. Polymath has innovated a new Ethereum based token standard, the ST20, which can only be owned and held by a list of authorized Ethereum wallet addresses, which have completed KYC verification procedures, which enforces compliance with government regulations.
tZero recently concluded the private sale phase of its security token (TZRO) which lasted til the end of August; that’s when the trading platform went live.
Bancor has innovated the Smart Token protocol which is the seed for a decentralized cryptocurrency exchange. Smart Tokens can be continuously and autonomously converted to other tokens on the network using a technology that operates in a manner that is somewhat similar to Atomic Swaps.
Bancor has joined the world of Security Token exchanges. Literally, the Bancor protocol is fully compliant with security token trading and the BNT token will act as a connector token, or a bridge token, that can intermediate the exchange between any pair of security tokens.
Now, let’s take a look at the security token exchanges that are expected to launch during Q4 2018 and 2019.
Forthcoming Security Exchanges
Gibraltar Stock Exchange
The Gibraltar Stock Exchange (GSX) is a Gibraltar based stock exchange. GSX was the first fully licensed stock exchange in Gibraltar. The exchange was fully operational in 2015’s first quarter. In October 2017, the CEO of GSX announced the establishment of a new subsidiary for the exchange, the Gibraltar Blockchain Exchange (GBX), which aimed at the establishment of a regulated utility token marketplace. Soon after the GBX announcement, GSX Group Ltd. confirmed that it was planning to revamp the group’s stock exchange (GSX) to become the world’ first ever regulated security token exchange.
Even though trading of security tokens was planned to kick start by the fourth quarter of 2018, delay in regulatory approval by the Gibraltar Financial Service Commission (GFSC) led to adjournment of the process to the first quarter of next year. The launch of security token trading on GBX will mark a big moment for the crypto community as security tokens become recognized by an EU licensed stock exchange.
Coinbase, the popular US-based cryptocurrency exchange, has announced that it is on track to enable security token trading on its platform. Being based in the US, acquiring the necessary banking licenses and brokerage statuses can take years. To overcome this, Coinbase has decided to merge with companies that already have the required licenses and registrations. That’s why Coinbase has successfully purchased three financial institutions: Venovate Marketplace Inc, Keystone Capital Corp, and Digital Wealth LLC.
Approval of these acquisitions by the government will help Coinbase acquire the legal standing of a full brokerage, which will enable the exchange to launch security token trading on its platform. It is expected that users will be able to trade security tokens on Coinbase in 2019, yet a specific date for the launch of Coinbase’s security token exchange hasn’t been announced.
Templum is another US based security token exchange that is planned to launch in 2019. Templum Markets LLC is a subsidary of Templum that is established to permit issuance and trading of various forms of tokenized assets.
Last February, Templum acquired Liquid M Capital, which gave the company access to an ATS, enabling a secondary market for the institution. Via the ATS, Templum will be able to offer security token trading on its platform in compliance with the US SEC regulations.
Even though Templum’s trading platform is live, the listed tokens are very few. So far, BanQu was the only company to conduct a TAO, and BCAP is the only secondary trade successfully completed. Templum has just partnered with CUSIP Global Service to be able to bring the standardized identification number to ICO security tokens.
The platform is expected to be completely developed in 2019, enabling security token trading that is fully compliant with the US SEC regulations.
In 2009, SharesPost was established to open the door for online private equity secondaries. Today, SharesPost has over 50k accredited investors and has executed more than $4 billion worth of shares transactions for over 200 technology companies.
Last May, SharesPost announced that it would revamp its current ATS to be able to offer security token trading on its platform. Thereafter, the company announced in June that it managed to close a $15 million Series C round that had been led by LUN Partners and Kinetic Capital to expand their ATS and open markets in Asia. SharesPost’s CEO aims at creating a global marketplace for trading of both conventional and tokenized security assets of various private companies.
Australian Securities Exchange
The Australian Securities Exchange (ASX), Australia’s primary stock exchange, announced in 2017 that it was working on becoming the world’s first stock exchange to develop an infrastructure for its trading platform based on the blockchain technology. ASX planned to use public ledger technology to replace its clearinghouse framework, known as Clearing House Electronic Subregister System (CHESS) to offer traders improved system efficiency, security, and reliability. Australia’s top stock exchange is actually developing their own blockchain, i.e. “permissioned blockchain”, to tokenize securities for the equity market in Australia.
Even though ASX planned on launching its security token trading platform in Q4 2020, the exchange’s board has announced recently that the launch date was adjourned to March/April 2021. ASX started exploring various applications of the blockchain technology in 2015, in order to be able to replace the exchange’s settlement, registry, and clearing system with a blockchain based system developed via collaboration with Digital Asset (DA), a software company specializing in the development of distributed ledger based solutions for financial institutions.
The new trading platform will operate on a permissioned blockchain where registered account holders will have to obtain clearance to be able to use it, while ASX will represent the only party with the ability to commit financial transactions to the ledger. As such, the new platform will represent a centralized network for trading of tokenized securities.
Malta Stock Exchange
Malta Stock Exchange has just inked a number of deals aiming at enabling MSX, the fintech arm of the exchange, to launch a trading platform for tokenized securities. These deals will see MSX partner with Neufund, a platform for the issuance of security tokens, to build a decentralized, fully regulated, stock exchange for trading of tokenized securities in addition to security tokens.
The partnership is planning a pilot during the next few month, which will include an ICO hosted on Neufund’s primary market, and the ICO tokens will later on be listed and traded on Binance (via means of a separate agreement with Neufund).
MSX is working closely with the regulators in Malta to comply with the Malta Financial Services Authority Act. Malta has emerged as a haven for blockchain investors, with big businesses like OKEx and Binance relocating to the country, which has been referred to as the “blockchain island” during the past few years.
SIX Swiss Exchange
SIX Swiss Exchange, Switzerland’s primary stock exchange, announced last July that it is developing a fully operational trading, settlement, and custody platform for security tokens and tokenized securities. The exchange’s new project, which has been named “SIX Digital Exchange” (SDX), is intended to be the world’s first end-to-end exchange for tokenized asset markets. SDX will tokenize existing conventional securities and other forms of non-bankable assets to boost the liquidity of illiquid assets. Furthermore, SDX’s services will include the issuance, listing, and trading of security tokens. SDX will be fully compliant with the regulations of the Swiss financial regulator FNMA, and endorsed by the Swiss National Bank, similarly to the SIX Swiss Exchange.
London Stock Exchange
London Stock Exchange, one of the world’s earliest stock exchanges, announced last July that it is collaborating with UK’s main financial regulator, the Financial Conduct Authority (FCA), in addition to two UK based firms; 20|30 and Nivaru, to issue tokenized equities in a UK based company in full compliance with the regulations of UK’s Financial Conduct Authority.
The planned partnership will utilize LSEG’s Turquoise platform, a hybrid exchange that offers a broad universe of European equities. The equities will be based on Ethereum’s blockchain and will be mainly comprised of ERC20 standard tokens. Later this month, 20|30 will be the first platform to test the process. Following a one year lock-up period, the service will be launched to the public, enabling startups and corporations to tokenize their shares. Interestingly, a large number of companies are awaiting to test out the process.
Finally, it is worth mentioning that all these emerging security token exchanges and trading platforms for tokenized equities represent just the beginning of a new era that will take equity markets to a whole new level. Blockchain based security tokens offer traders a myriad of efficiencies and advantages that promote transparency and security. Even though a considerable percentage of the world’s conventional financial institutions are resisting utilization of the blockchain technology, the market has just begun to adapt, as we’re witnessing the emergence of many trading platforms for security tokens and tokenized equities during the upcoming year. As more and more people are beginning to realize the advantages of the public ledger technology, the market will definitely start moving towards a new model based on tokenization of assets.
I wouldn’t be surprised if all of the world’s equity markets shift to the blockchain within the next few years. Who knows? Let’s just wait and see!
Quick way to spot an ICO scam
Everybody knows that it’s important to perform your due diligence before any investment in the ICO industry. But few people seem to understand what that actually means. One of our missions is to teach people how to spot a scam, rather than relying on others to do it for them. In the interest of increasing your own self-reliance and ability to outwit the scammers, we’re presenting a new tutorial on how to validate image authenticity on ICO websites.
Know your templates
As we’ve mentioned before in our above-linked guide, many ICOs use ready-made website templates as a way to both present the ICO without a lot of effort and save money on web design. While some of these templates give ICOs a base structure and allows them to use it to create a very personalized page, others offer a completely generic pack with very few possible changes.
Becoming familiar with the most common ICO templates, and what they look like in their unmodified forms, is a valuable tool in your scam-prevention arsenal. One common red flag is when the ICO has not changed the default images that come with the scheme. Let us demonstrate.
In this case, we searched for the image of the mobile application presented on the website of Referpay Network, a known scam. This image was originally used in the template from which this website was created.
By simply searching this image, we found that more than 70 ICO websites had never changed this image and are still presenting it as their “app-to-be-developed” on their website. It didn’t stop there.
We went through each one of these websites to confirm that the actual image is still there. As we discovered two very interesting things:
- The vast majority of these sites were scams. Luckily, about 90% of these scams had already ended in February. Unfortunately, there are 7 scams that are still active (which we will be publishing in the coming week). All initially connected by the same image. One of these scams has actually created a wallet app that looks exactly like the image, yet does nothing.
- Although the majority of the websites had a false link to the various application stores, some of the sites had links for the HB Wallet app on all the stores. We followed up with HB Wallet, and they stated that there is no connection between them and these wallets.
Image searching: quick, easy, necessary
This is a great example of how important it is to Google the images used on an ICO’s website. This wasn’t a team member’s profile picture or something buried in the whitepaper, it was prominently displayed as the mobile app image.
But how do you search for an image? It couldn’t be easier! Simply right click on the image, and click on “Search Google for image”. See many results, from different sources, containing that image? Congratulations, you have found a stock picture.
Not sure which image to Google? Since it’s so quick and easy, we recommend searching every image that presents information about the ICO. Team members, apps, charts, and graphs should all be investigated. And remember, you can save yourself a lot of search time by familiarizing yourself with the most common ICO templates and the images they use, so that you’ll recognize them when you see them later. The more you research and investigate ICO websites, the more you’ll start to develop a hunch about what images have been carried over from the default or stolen from other sites.
We hope that this guide will help you in your efforts to spot ICO scams!