Crypto price flop means it's time to focus on what matters.

August 19, 2018 Coindesk Weekly is sponsored by

Bear Market Blessings The crypto community should use this moment to forget about price fluctuations and engage the world in a discussion about blockchain tech's potential, writes Michael J. Casey. Read more in THE TAKEAWAY below.

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Eye on XRP This week saw a few noteworthy developments for Ripple, the Silicon Valley payments startup that's had a complicated relationship with XRP, the world's third-largest cryptocurrency by market cap. Most significantly, the company designated three cryptocurrency trading platforms as its “preferred digital asset exchanges." By giving this seal of approval, Ripple is encouraging bank clients in the U.S., Mexico and the Philippines to use these specific exchanges for sending funds via its xRapid service. Meanwhile, a federal judge in California denied an investor’s motion to move a lawsuit against Ripple back to a lower court. The suit was filed earlier this year by an investor named Ryan Coffey, who claimed that XRP is an unregistered security controlled and issued by Ripple. The company succeeded in escalating the suit to the U.S. District Court, and is now trying to combine it with a similar case to prevent multiple outcomes. And with all eyes on Ripple this week, the price of XRP is as of this writing down more than 90% from its all-time high reached in January. Thefts and frauds The week also brought several sobering reminders of the lengths criminals will go to in order to steal cryptocurrency. First there's an interesting suit brought by crypto angel investor Michael Terpin against AT&T. He blamed the U.S. telecommunication giant for failing to protect his phone against a SIM swap, a type of fraud where crooks gain control of the victims' mobile numbers, and from there gain access to online accounts. In this case, Terpin claimed he lost $24 million of cryptocurrency to this kind of scheme because of AT&T's gross negligence, and is seeking that amount plus $200 million in compensatory damages. The company disputes the allegations.  Meanwhile, the U.S. Securities and Exchange Commission (SEC) barred the founder of the company behind an allegedly fraudulent initial coin offering (ICO) from serving as an officer or director of a public company or from trading penny stocks. David Laurance and his Tomahawk Exploration LLC allegedly sought to raise funds through a token sale that involved misleading marketing materials and false claims about oil drilling licenses. Over in Thailand, a 22-year-old cryptocurrency millionaire is reported to have lost more than 5,500 bitcoin in an alleged investment scam. After transferring the 5,564 bitcoins to a group that claimed to have created a cryptocurrency used in a casino in Macau, Finnish businessman Aarni Otava Saarimaa never saw any returns. He then filed a complaint to Thailand’s Crime Suppression Division (CSD). Following a months-long investigation, the CSD suspected that the Thai film actor Jiratpisit “Boom” Jaravijit was involved in the plan and arrested him last week, part of the reason the news drew public attention.

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QUOTE OF THE WEEK The only secondary market validation of their investments is the next round of fundraising, which can easily always go up if you get your boys to go in along with you. You pump my bags, I'll pump yours."  – BitMEX co-founder and CEO Arthur Hayes, arguing that venture capitalists are unprepared for the ups and downs of crypto trading.

The Takeaway

WHAT REALLY MATTERS Michael J. Casey is the chairman of CoinDesk's advisory board and a senior advisor for blockchain research at MIT's Digital Currency Initiative. "Crypto in crisis." Mainstream press outlets covering battered crypto markets have frequently invoked that phrase in recent weeks. For those of us who've followed the cryptocurrency scene for five years or more, the natural retort is: "When hasn't it been in crisis?" I would suggest that crisis – or at least relentless, chaotic drama – is the natural state for an open-source technology that engages a diverse, global, leaderless community in exploring an idea that promises to reorganize the fabric of our economy. The outcome of this grand experiment is unknowable. But if we accept that the prospect of replacing 5,000 years of centralized record-keeping with a decentralized model of computerized consensus is pregnant with transformative potential, then we must also accept that it will generate wild, impossible-to-measure predictions, along with rampant speculation and hype. By extension, these will frequently also generate fear and disappointment, and, unavoidably, price volatility. The other thing you'll hear from crypto "veterans" – yes, just five years in bitcoinland qualifies you for that title – is that crisis, and bitcoin's capacity to survive it, is precisely what proves its worth. The meme most frequently used to describe this resilient quality is that of bitcoin as the honey badger. But I prefer Andreas Antonopoulos's "sewer rat" analogy: bitcoin as a tough-as-nails subterranean rodent that has proven it can take what the world throws at it. Our increasingly distributed, fragmented economy needs open, self-healing systems that can withstand threats. The fastest way to build such resiliency is to expose the system to those threats so that it generates self-correcting counter-responses. Bitcoin, unprotected by a corporate IT team's firewalls, rises to that challenge. About here you might assume I'm going to smugly argue that the latest round of crypto critics are doomed to the same fate as past naysayers, who were proven wrong by the price recoveries that occurred after prior moments of "crisis." (These newcomers would include former Paypal CEO Bill Harris, who told CNBC this month that he saw bitcoin going to zero.) But that's not what this essay is about. History is not prologue. The fact that bitcoin eventually recovered from the low of $210 it hit one year after its late-2013 peak of $1,150 is no guarantee that it will rebound from its current price near $6500 and revisit its late-2017 peak of $19,783. And, yes, it could definitely go lower. Much lower. Fewer lambos, more education Rather, what I'd like to talk about is how the crypto community should use this moment to forget about price fluctuations and instead engage the world in a proper discussion about blockchain technology's potential. Let's have less "to the moon" and "lambo" talk and more discussions about the promise of peer-to-peer exchange, smart contracts and decentralized applications. It's time to ask questions about what we want this movement to be when it grows up. What do we want cryptocurrency and blockchain technology to achieve? And embedded in that is a question about who we are. As it stands in 2018, what does the crypto and blockchain community represent? Some serious crypto developers might submit that bothering oneself with such flimsy questions of identity is no better than obsessing with price levels, when the most important thing they need to do is write code and develop real, battle-tested functionality. To be sure, a post-bubble period, when the speculators' distracting hype has dissipated, is a great time for developers to get work done. It's no coincidence that segregated witness (Segwit) and the Lightning Network were developed during the prior bitcoin price lull. The ERC-20 ethereum token standard was also forged in that period, paving the way for ICO boom of 2916-2017. But the involvement of others in the advance of this technology must also be acknowledged – even those from the enterprise world, the corporate community that hardcore crypto folks tend to dismiss. The blockchain community's identity is complex and multi-faceted. Learning from private blockchains During the previous bitcoin market hiatus, while bitcoin developers worked on scaling solutions amid a different kind of "crisis" – the block size debate – a wave of non-developer newcomers started getting interested in blockchain technology: lawyers, bankers, supply-chain managers and regulators. Rising to serve their interests were a variety of permissioned blockchain platforms, including IBM's Fabric, introduced within the Hyperledger project, and the R3 consortium's Corda. Fast-forward to 2018 and, while cryptocurrency investors lick their wounds and wonder what the future holds, permissioned enterprise solutions are marching ahead, moving from proofs-of-concept to real-world implementations. In just two recent examples, the World Bank teamed up with Microsoft and the Commonwealth Bank of Australia to issue its first blockchain-based bond and Maersk and IBM announced that 94 firms have signed up for TradeLens, their supply chain, shipping and logistics platform. Many crypto developers dismiss these enterprise-driven private blockchain solutions, which typically employ pre-bitcoin consensus solutions such as practical byzantine fault tolerance and a trusted entity to administer the network, as a retrograde solution that's not censorship-resistant. Like them, I believe permissioned blockchains will ultimately be proven inferior to permissionless systems, much as the open Internet's greater access to innovation and bigger network defeated private companies' walled-garden "intranets" in the nineties. But I also think the work being done on these permissioned blockchain solutions is immensely valuable. Until scaling solutions such as Lightning and sharding are working at full capability, permissionless blockchains can't introduce decentralized applications at scale with anywhere near the ease of permissioned systems, which have fewer governance and computational limitations. In the meantime, there's a great deal of learning that we can – indeed, need – to take from how these real-world private blockchain implementations play out. Consider what the TradeLens project might tell us. What standards and practices will shippers, manufacturing companies and customs agents adopt as they integrate smart contracts to coordinate the movement of goods across multiple jurisdictions? Finding common ground This cross-community learning is precisely why the "who are we?" question matters. Believe it or not, across a diverse and even divisive community – public versus private blockchains, BTC versus BCH, maximalists versus everyone else – a common vision does exist. We just need to define that shared identity more constructively than the one that many outside of the community assign to it: that of a nerdy, fanatic cult. (An aside: one response to Bill Harris's derisive comment about the "cult of bitcoin's" false claims – "that it's instant, free, scalable, efficient, secure, globally accepted and useful" – is to point out that in post-AD Rome, Christianity was a cult. Also, why do people who made their living from the constant improvement of the Internet assume that crypto technology is doomed to a static existence? Dismissing bitcoin because of its limited scalability and adoption in 2018 is like attacking the Internet in 1995 because 28 bps modems were too slow to enable meaningful connectivity – as if no engineers see the problem or are working on it. Sheesh.) How do we get society to go beyond these simplistic representations of the blockchain community? What is the core commonality that matters within this wide tent? To me it the common recognition that decentralized consensus mechanisms that enable groups of people to collectively assess the veracity of shared information can help society more efficiently overcome the cost of trust, an age-old human problem. They all see in this new model big opportunities to disintermediate value exchanges of all kinds and, in doing so, to open markets and unlock innovations that produce better outcomes for everyone. Blockchains are a complex, multifaceted social technology. As such, achieving its full potential requires different types of expertise. Of course, we need a great deal of protocol development, but also UX and application design. And beyond the engineering realm, we need legal reforms, governance solutions, standards agreements, and marketing and education. Here the 2014-2015 price lull is also instructive. At that time, bankers and lawyers, their interest piqued by the market mania they'd witnessed in 2013, took early moves toward comprehending blockchain technology. In doing so, they spurred a valuable societal debate on the challenges and opportunities it presents. Even as a few ham-fisted regulatory solutions, such as the BitLicense, emerged and as banks undertook a clumsy, misguided attempt to co-opt "blockchain without bitcoin," the opening of a mainstream conversation enabled sensible advocates for the technology such as Coin Center and the Digital Chamber of Commerce to establish an invaluable dialogue with policymakers and society at large. I see potential to do even more at this time, as securities regulators grapple with how to define and manage token markets and as wide-membership industry initiatives such as the Token Alliance come with up useful frameworks for self regulation. A time like now, with the bubble burst and the market mania subsiding, is the ideal one in which to undertake this kind of multi-stakeholder engagement. — Michael J. Casey

BEYOND COINDESK...

MASHABLE: Inside the Hyde nightclub at the Bellagio hotel and casino in Las Vegas, another, more exclusive nightclub exists called MORE Las Vegas. You can't even get through the front door to this VIP area without HODLing MORE Coin, the club's own cryptocurrency. Mashable's Jack Morse took a trip to Vegas and observed the luxurious lifestyle of people who became “undeniably rich” in the crypto run-up of 2017. WIRED: “We want to empower people down to the individual level without asking for the permission of governments,” says Santiago Siri, an Argentine man who has a radical solution for politics with blockchain. Citing problems like the Russian interference in the 2016 U.S. election and his own experience with corruption in Argentina, Siri told Wired that he wants to create a “political cryptocurrency” for a project called Democracy.Earth. By using a "vote token," the users of this new social media platform would be able to do anything from electing politicians and passing referendums to enacting the bylaws of a social club. But if you're rolling your eyes right now, the article also strikes some skeptical notes about blockchain voting. UNIVERSITY OF CAMBRIDGE: If you have some extra time over the weekend, sit down and take a look at this lengthy research paper that was just published by the Cambridge Center for Alternative Finance at the University of Cambridge. After observing how the distributed ledger technology (DLT) ecosystem “is plagued with the use of incomplete and inconsistent definitions,” the research team wanted to create “a shared, common language around DLT systems” in order to standardize DLT terminology. Whether you are an experienced policymaker, a blockchain developer, or just an individual who wants to understand the technology better, this paper, chock full of explanatory graphics, is likely to be clarifying.

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