German banks want to hold Bitcoin, Oh, the irony

German media outlet Handelsblatt reported a new bill that would make it legal for banks in Germany to hold Bitcoin. The report added that Sven Hildebrandt, Head of Distributed Ledger Consulting said Germany was on its way to becoming a “crypto-heaven.”

Combining crypto and traditional banking is a double edged sword. On one hand, when Canada approves Bitcoin funds, or Bakkt releases an exchange tailored for big investors, holdrs get excited about the price going up. On the other, the actual ingenuity of Bitcoin becomes irrelevant.

Bitcoin is cool because you don’t need a bank to keep it safe and it doesn’t take up room. All you need is to write down a password, hide it, and then never worry about a third party losing your funds. Still, Warren Buffett doesn’t even use a cell phone so who really expects someone like that to create a crypto wallet.

These banks will also be allowed to sell Bitcoin as well, but not buy it back. The demographic of investors that want to buy Bitcoin from a bank and keep it there seem less likely to withdraw it to an online spot exchange and sell it there. This could be good for the bullish case with there being less supply, but then again, the investors will probably be able to find someone to sell it for them.

I can’t help but feel like it’s pointless to buy Bitcoin and give it to a bank. You could easily watch a 5 minute YouTube video and have it be even more protected. If a customer calls up and is able to sell their bag through the bank, that would be more intriguing, but also would make it a full fledged exchange.

I held Bitcoin on an exchange for a long time, but after seeing so many exchange hacks, I found it worth while to create a wallet. In the end, it took way less time than I expected, especially because there are wallets with great user experiences, like Exodus.

There are no size limit to wallets, no fees (other than those inherent to blockchain transactions) and it’s as easy as setting up a Facebook account. With all that, I would be surprised to see an excessive demand for banking Bitcoin.

Why is everyone competing over a digital dollar?

Within the past few months, a centralized digital dollar has been brought up by major nations such as China, the United States and Europe. When Facebook introduced their Libra coin, it caused fear in many governing bodies that their powers could be taken away from them, because of the reach and efficiency of digital currencies.

Even before Libra, countries have been thinking of ways to dethrone the U.S. dollar. So, Why is everyone suddenly so inspired to compete? and how could a digital dollar be considered a threat to national security?

Europe on competing with Visa and creating a digital currency

“A central bank digital currency could ensure that citizens remain able to use central bank money even if cash is eventually no longer used”. – Benoît Cœuré

The most recent conversation about a central bank backed digital currency was had in Europe at the Joint Conference of the ECB and the National Bank of Belgium. Cœuré, Executive at the ECB, named many reasons for this consideration. Untested stablecoins like Libra as a threat, foreign run cards dominate European transactions, and like everyone else, they’d like to take some power away from the USD.

Another recent European announcement, the Pan European Payment System Initiative, (codename, Pepsi) intends to compete with Mastercard and Visa by allowing faster transactions. The project is backed by 20 major European banks including BNP Paribas and Deutsche Bank, and would allow transactions to settle instantly in the Euro area. Cœuré mentioned that the EBC would assist in making that technology a possibility.

China’s loves being cashless, and might be the first with a digital dollar

China has had plans for a digital currency for several years, under the acronym DCEP. Things were going slow until August 2019 when there talk of Libra’s currency was floating about the internet. Suddenly, as The Block reported, China’s Central Bank became ready to “soon release” their digital currency.

The Chinese renminbi is already a powerful currency, with central banks holding about $213 million worth in the first quarter of 2019. The country also has been very progressive in becoming a cashless nation. In a recent Unchained Podcast, hosted by Laura Shin, media figure Dovey Wan said that China was looking to add privacy features to their digital currency that, heavily used, Alipay doesn’t give to users.

Because of China’s knack for digital payments, it’s not surprising they are looking like the first to the chase when it comes to a digital dollar. It has not been specified what tech will support the currency, but recently, Chinese President, Xi Jinping expressed expressed support for Blockchain technology.

The U.S. is slow, but fear is driving change

After Libra’s congressional hearing, a top U.S. federal official spoke out about the U.S. considering a digital currency. This could have been triggered by conservatives at the Libra hearing mentioning feeling threatened by China beating them to the tech, or because a former CFTC chair had just published an Op-Ed encouraging the U.S. to create a digital dollar.

The U.S. is pretty far behind in adopting digital technology, being one of the most strict nations in terms of crypto regulations. One thing that the U.S. has going for it is that Facebook is an American company. The Libra Association’s strongest members are made up of mostly big U.S. corporations. This is likely one of the reasons that China wants to be the first to create a digital currency.

Still, Libra is a polarizing topic in U.S. politics and Facebook won’t release it until regulators approve. Unfortunately for Facebook, regulators aren’t very keen on the coin.

Why digital cash is a threat to nations who fall behind

Let’s be clear, no cryptocurrency or blockchain project have been able to test a userbase to the extent of what a digital currency would acquire. That being said, EOS transacts faster than Visa, Ripple has proven to save time and money for companies like MoneyGram and this type of tech is still in it’s youth.

So, disregarding the unproven effectiveness of servicing a majority of the world, let’s imagine everything works out. If China is the first to release a scalable, cheap, efficient and easily accessible digital currency, then then everyone would have some sort of incentive to use it.

The digital token would be as stable as any other national currency because of central bank backing. It would be ideal for sending money across borders, it would be cheaper for retail merchants too transact with, and even when sending money to a friend, users wouldn’t have to pay any sort of significant fee to receive it instantly.

China would have no reason to keep the currency within their borders. In fact, Alibaba, owners of Alipay would be one of the first to receive the currency and Americans can download Alipay on their smartphones. It would take significant effort for every retailer in America to accept the currency, and for American employers direct deposit salaries into it, but it would be possible if America never caught up.

There’s tons of economics behind why the U.S. government wouldn’t want their citizens using Chinese currency, but just believe that they do not. It would eventually lead to a weaker dollar, which could change global industries and power structures.

Back in 2009, China and Russia were expressing their desire for a global reserve currency to provide more stability than relying on the U.S. That never worked out, and now they’re both more progressive with financial tech than the U.S.

I wonder why.

Proof of Stake: When Ethereum’s price will start to matter

Ethereum has distinguished itself as one of the few coins that isn’t concerned about “mooning” to maintain relevancy. But just how long can Ethereum remain secure without significant gains in price? The answer to that question depends upon If proof of stake comes to fruition.

Security in Proof of Stake vs. Proof of Work 

In a proof of work system, it takes tons of electricity to validate a block. Validation is the confirmation of all transactions within a new block and those that came before it. This is how security works in tokens like Bitcoin and Ethereum, and because of how difficult it is, it works pretty well.

Instead of difficulty lying in the cost of mining operation, a proof of stake system interprets difficulty as obtaining large amounts of the currency. For example, if Ethereum ever moves to proof of stake, Eth holders will lock their assets up in exchange for a chance at validating a block. The more Eth that someone locks up, the higher chance they have of validating a block and receiving rewards.

As stated earlier, the Ethereum community has a reputation of not placing importance on the price, but in a proof of stake system, that notion will need to be thrown out of the window.

“If we build a network worth one dollar, then, to attack it someone doesn’t need to spend very much money. The more it costs to purchase enough Ether to meaningfully disrupt the system, the more secure it is for everybody building on top of this.” – Ameen Soleimani, Founder of Moloch DAO

How has Ethereum been preforming lately? 

2019 was owned by Bitcoin. Everyone called Bitcoin’s 2017 bull run a “bubble” and investors seemed to want to prove that there is still life left in grandfather crypto.

Unfortunately, it has not so much been the case with Ethereum.

Bitcoin’s all time high is $20,000 and this year it almost recaptured those heights, hitting $14,000 before bears took control. Ethereum on the other had has seen all time highs of $1,400 and only made it back up to $350. In these terms, Ethereum was more overvalued than Bitcoin at their 2017 peaks.

Still, Ethereum’s lows were in the $90 range this year and with a $350 top, it’s pump was just shy of 4x, not too far away from Bitcoin’s gains.

After the highs of this year, Ethereum dropped much more quickly than Bitcoin, falling over 2x from its peak while Bitcoin is still maintaining more than half of its yearly high value. Crypto markets tend to move in tandem, but in order for outperform Bitcoin, it will need a rally on its own.

Will Ethereum be secure if Proof of Stake releases at the current price?

Ethereum is still worth billions of dollars as is, so changing to a proof of stake network won’t kill it. But still, it is objectively for an organization to come up with billions of dollars than to set up a mining rig bigger than everyone else’s combined.

If an organization wanted to accumulate Eth, it would be purchasing from potential stakers, where as mining equipment comes from manufacturers. This allows room for greater gains in power than in a proof of work system.

At the end of the day, the best thing for the security of Ethereum as a proof of stake system would be for more people to adopt the tech and the price to increase. As the price increases, it becomes harder for an organization to acquire a majority. As more transact with Eth, the price becomes higher.

Right now, Multi-Collateral Dai is like an iPhone without an App Store

The token that holds DeFi together, Dai, just went through a highly anticipated improvement. Last week it was only able to be created by giving Maker Ethereum and now the system is capable of collateralizing any ERC-20 token. Even though it’s exciting, in its current adolescent stage, it’s hard to be truly excited.

Maker is right though, Ethereum limits interest in Dai

There are a considerable amount of people who hold all Bitcoin and no Eth. That same amount of people are not able to, and are not planned to be able to collateralized their assets for Dai in the way Ethereum holders can.

If Maker wants to maintain the most adopted decentralized stablecoin, they will need ways to increase supply to match ideal demand. Before Multi-Collateral Dai, the supply was limited by the amount of Eth holders who were willing to collateralize their positions.

Now, they added compatibility for ERC-20 tokens, and are starting things off with Basic Attention Token. Still, BAT will only be able to make up about 3% of Dai’s total collateral. And this is where things get less exciting.

In reality, this MCD launch is a baby step. I won’t criticize taking things slowly, because messing up the stability of Dai would dissuade people from using it, but 3% of collateral being BAT is really just not that cool.

Like an iPhone without an App Store

Maker is giving us a revolutionary product with Multi-Collateral Dai, but it still has yet to be realized.

First of all, it lives in the Ethereum network which has its own issues. Until Proof of Stake is a thing, payments are slow. Paying with Dai is like streaming video over a 2g network, just not worth it. It’s not Maker’s fault, it’s just that the technology isn’t there yet.

Like how iPhone users had to jailbreak their device to download apps before the app store existed, Multi-Collateral Dai still is forcing potential lenders to other avenues. The extremely limited amount of assets able to be collateralized still push Bitcoin holders take out centralized loans.

Right now, sites like Celcius allow users to exchange enter a CDP with Bitcoin and receive USDC. This doesn’t make USDC the same as Dai, because it is not being created by the CDP, just lent. Yet, it still will result in people avoiding Dai because they might not be comfortable holding an Eth position.

If Ethereum’s price moves the wrong way, lenders have a chance of being liquidated, and the Bitcoin / Ethereum markets have been quite different since the 2017 bull run.

Multi-Collateral Dai could include centralized assets in the future

It is possible for a trusted custodian to tokenize real world assets like gold. It is also possible for Maker to accept those tokens as collateral. In an interview with DeFi Nation, (and possible elsewhere) Rune Christensen talked about how accepting real world assets could help Dai scale.

DeFi purists likely won’t like the idea of trusted custodians playing a role in their decentralized stablecoin, but the more types of collateral Dai can accept, the more it can expand.

Along with that, Christensen noted that Maker loves Ethereum and it can take DeFi a long way, but it didn’t seem like he felt the need to be tied to it forever. Maker is having all Sai holders manually transition to Dai, so they might not be afraid of asking all holders to manually transition to a non-Ethereum network if the opportunity arose.

Compromising to expand (and be profitable)

As long as Maker stays on a secure, decentralized network which people lock value in to create a non-custodial stablecoin, it will still be beating the competition in terms of decentralization.

Some users will definitely be turned away from accepting centralized collateral, but it can also bring a less crypto-enthusiast demographic of users into the DeFi space.

Maker’s plans are still very speculative but one thing is for sure. MakerDAO wants to expand. Just like a company trying to appease shareholders, Maker needs to increase transactions in order to increase the value of their MKR tokens. MKR hasn’t seen a lot of ups and downs, but no true bull runs thus far.

 

 

Is DeFi making an impact outside of crypto?

Decentralized finance (DeFi) has been making it’s rounds in the blockchain mainstream lately, especially with the tentative release of Mutli-Collateral Dai. The term comes out of everyone’s mouth, but opinions are polarized. Some are under the impression that DeFi is impactful enough to trigger a bull run and some think it’s just useless.

To get a better perspective about if the DeFi talk is making an impact outside blockchain communities, I took a look at Google trends.

 

DeFi google trends

 

To my surprise, the term DeFi isn’t even close to it’s all time high. Even more surprising was that it’s all time high was in 2010. This isn’t the first time that the crypto space has been excited about something that previous generations had already talked about. Web 3.0 is a good example of an idea that had gone through a cycle and was refreshed through blockchain.

The difference is, decentralized finance hasn’t really gone through another phase. When researching the term DeFi from posts in 2010, most of it is just edgy internet slang for defy. The most viewed “defi” YouTube video in 2010 was a wind surfing event.

This video currently has 144,000 views, which got me wondering what the total amount of views from blockchain related DeFi videos amount to. This got me wondering whether all the DeFi videos on YouTube add up to this one wind surfing event.

It turns out that there are very few videos on YouTube with over 20,000 views that either have DeFi or decentralized finance in the title. In comparison, there are multiple videos with over one million views that have Ethereum in the title. The biggest Bitcoin YouTube video has over ten million views.

MakerDAO’s Dai stablecoin is a popular and key ingredient to the DeFi ecosystem, and the most popular video on that topic has around 22,000 views.

It’s easy to see how investors can get excited about blockchain tech that has tangible use cases. The fact that it is more profitable (and still non-volatile) to save USDC in Dharma than saving USD can transcend crypto. But in real time, DeFi’s macro impact is still up in the air.