Ethereum Soars To Record High After South Korea Regulator Confirms "No Plan" To Regulate Cryptos

In September, South Korea surpassed China in total crypto trading volumes, and as the world’s second largest Ethereum exchange market, South Korea is evolving into an Ethereum powerhouse with a rapidly growing number of active developments, domestic projects and communities.

image courtesy of CoinTelegraph

As CoinTelegraph reported previously, the majority of traders in the South Korean Ethereum market are speculative investors and tend to be largely influenced by any movement in the industry that could lead to a decline in Ethereum price. However, a fairly large portion of investors are avid supporters of Ethereum as a technology and an infrastructure for decentralized applications.

At the moment, ICOs seem like the largest market for Ethereum. In the upcoming years, it is likely that the performance of decentralized applications will evolve as a major factor for the market cap of Ethereum. In an interview with JoongAng, a leading finance news publication in South Korea, Buterin emphasized that it could take two to five years for Ethereum to scale to a point in which decentralized applications with millions of users can be launched and sustained.

There are many multi-billion dollar conglomerates and financial institutions in the Ethereum industry developing decentralized applications and platforms on top of the Ethereum protocol. The emergence of efficient and innovative scaling solutions will create a better environment for decentralized applications and will allow highly anticipated projects such as decentralized cryptocurrency exchanges and marketplaces to evolve.

If support and enthusiasm toward Ethereum in South Korea are sustained in the mid-term, it is highly likely that the South Korean Ethereum exchange market could evolve into an Ethereum powerhouse. As Buterin noted in the interview with JoongAng in the upcoming years, applications of Ethereum in a variety of industries will be tested and implemented.

Buterin explains:

“I would say that Ethereum’s main benefits are in its generality and in its utility to many kinds of industries. There are applications in finance, identity, supply chain tracking, health care, energy and many other areas. This is a result of Ethereum deliberately being designed as a general-purpose programming platform.”

And now, given the overnight news from South Korean regulators, it appears Ethereum has that chance...

As CoinDesk reports, the governor of a South Korean financial regulator has said it has "no plans" to supervise cryptocurrency trading, according to a report.

In remarks made to reporters today, Choe Heung-sik, chief of the Financial Supervisory Service (FSS), said that, since his agency does not view cryptocurrencies as "legitimate currency," the FSS does not intend to supervise trading of the digital assets.

According to a Korea Times report, Choe added the South Korean government believes that cryptocurrencies are used in speculation, not as payment tools. As a result, the watchdog considers that cryptocurrencies are not financial products, nor is trading them a financial service.

He said:

"Though we are monitoring the practice of cryptocurrency trading, we don"t have plans right now to directly supervise exchanges. Supervision will come only after the legal recognition of digital tokens as a legitimate currency."

The watchdog head"s comments come amid growing popularity of cryptocurrency trading in South Korea, and may have been prompted by the recent outage of major domestic exchange Bithumb, which recently experienced a technical outage that reportedly lost traders billions of won.

But his comments appear to have quelled any anxiety among speculators, as is clear by the reaction in Ethereum - the South Koreans" confidence is back...

 

Which leaves Ethereum solidly in 2nd place among crypto market caps...

Another One Of The World"s Largest ICOs Is Collapsing

Last month, we reported that the world’s largest ICO was imploding after just three months as its developers admitted they wouldn’t be able to deliver the tokens purchased during a $230 million July “presale” by the end of the year, as they had promised, causing an understandable furor among its investors.

Now, in the latest sign that the $3 billion ICO market is imploding, Bloomberg report’s that the value of formerly high flying Bancor, the world’s fifth-largest ICO by funds raised, has plunged by more than 50% since the company’s June ICO as investors have become disillusioned with its obscure product.

Bancor attracted big name venture capitalists like Tim Draper this year when it published a white paper proposing to create a kind of decentralized digital currency exchange that would allow holders of the Bancor tokens to exchange them for other digital currencies listed on their market-making platform - a functionality, its creators insisted, that would one day render digital currency exchanges obsolete.

But while it’s founders delivered a compelling pitch, beneath the surface was a product that was, at best, needless complex, and at worst, downright nonsensical.

Of course, the obliqueness of Bancor"s plan showcases a common trope in the ICO market whereby companies say they’re “improving” on the “user experience” of a product that most users are already satisfied with - except instead of creating a more streamlined solution, they propose to make it needlessly more complex by involving “decentralized” systems and monetizable tokens.

The result is a soup of hypertechnical gibberish, and a use-case that, tellingly, only the people building the product seem to understand. For many investors, that should trigger nightmarish flashbacks to synthetic CDOs (which are themselves experiencing something of a renaissance led by Citigroup) and other arcane credit derivatives that helped crash the economy and market in 2008.

Cornell professor Emin Gun Sirer, in a takedown of Bancor published shortly after the ICO, validated this view, arguing that Bancor’s formula is less efficient than simply making the market manually, Sirer says. And they say the technology could also be vulnerable to front running, where people make money off of the visibility of others’ transactions.

Here’s Bancor’s explanation of its functionality from its white paper:

Abstract: The Bancor Protocol enables the creation of networks of smart contract-based “Smart Token.” Smart Token hold balances of one or more other tokens--“Connectors”--and have a builtin autonomous conversion mechanism that allows any party to instantly purchase or sell the Smart Toke for one of its Connectors, directly through the Smart Toke contract, at a price calculated by a formula which balances buy and sell volumes.

 

Bancor believes that Smart Token can address the challenge of liquidity  faced by conventional tokens, cryptocurrencies, and community currencies on three levels. First, and most fundamentally, by being autonomously convertible for their Connectors, and with an unconstrained supply that grows in response to purchases, each individual Smart Token has built-in liquidity that does not depend on counterparties or exchanges. Second, Bancor has developed specialized Smart Token that enable inter-convertibility between any two other Smart Token or, with an added step, between any Smart Token and any conventional Ethereum network token. Third, Bancor’s ultimate vision is that users will create their own tokens and community currencies in the form of Smart Tokens™ that hold a common Connector, enabling any Smart Token™ in the network to be converted into any other. Bancor’s own Smart Token, BNT, is the common Connector in the first such network, which we call the Bancor Network.

And here"s Bloomberg"s translation.

Bancor protocol enables anyone to create a new type of digital coin called a Smart Token, which can hold and trade other tokens. This allows the Smart Token contract to serve as its own market maker, automatically providing so-called price discovery, and liquidity to other coins. So effectively, Bancor has created an exchange that will automatically price and trade any cryptocurrency that wants to list with it, as well as a token. The company says it will always have enough liquidity to make the market because the currencies have to build a reserve in Bancor tokens.

Initially, the notion that Bancor - which is named after the universal curency proposed by John Maynard Keynes - can “guarantee liquidity” for ICO tokens that have been shunned by major digital currency exchanges sounds like a vaguely useful market nich. And one could argue that there might be a niche. Today, the FT reported that GDAX, one of the largest cryptocurrency exchanges, said it wouldn’t list most ICOs because of doubts about their viability. But as one trader explains, when exchanges refuse to list a token, there"s generally a good reason.

Kyle Samani, managing partner at Austin, Texas-based hedge fund Multicoin Capital, said the functionality Bancor provides isn’t needed. Tokens that can’t list on exchanges may simply not be good enough, he said.

"For assets that actually have value, there will be a market," Samani said. "For assets that people don’t want to buy... why should there be some pity-based programmatic market maker to provide liquidity? My inner capitalist is just dumbfounded by the concept of Bancor."

Even the venture capitalists don’t get it.

"I’m a big fan of what they’re building and think they are the most qualified team around to do it," Brock Pierce, co-founder of Blockchain Capital, an investor in Bancor’s tokens, said in an email. "Not everyone understands it."

In defending Bancor, one adviser had the temerity to argue that consumers don’t understand how exchanges work, and that Bancor’s concept is somehow more straightforward, which is an obviously absurd thing to say.

But even if Bancor tokens did have a clearly defined use-case, it wouldn’t make a difference if the company couldn’t implement it, or if nobody used their product ( the network effect is obviously crucial for these tokens to thrive). Right now, Bancor tokens are - to borrow a conspicuously apt analogy from Cornell Professor Gun Sirer - “like a child’s swimming pool placed in an ocean.” Essentially a less liquid, more volatile version of Ether. Bancor was built on top of the Ethereum protocol, and Gun Sirer said buyers needed ethereum to purchase Bancor during the crowdsale - a claim Bancor disputed.

However, while Gun Sirer’s criticisms appear thoughtful, his perspective is automatically rendered suspect by the fact that he’s an adviser to Tezos, an ICO that raised more than $230 - the largest haul so far - but has been plagued by missed deadlines and internal strife, as we noted above.

Bancor, which penned a thorough - but glib - rebuttal to Gun Sirer’s comments, claims its product is already in demand. To wit, thirty tokens are already using, or planning to use, its platform, it says. But given the performance of the tokens, vanishingly few people are trading on it.

Still, Draper, the project"s most visible backer says it’s only a matter of time before the tech blossoms and the value of Bancor tokens soars.

Backed by billionaire venture capitalist Tim Draper, Bancor is the fifth-largest ICO by amount raised by startups, which totals more than $3 billion this year. "All of these projects are in development," Draper said in an email. "Wait two years, and I believe we will all be blown away by what these people can do for the world.”

But let us stop you right there.

As many of our long-time readers are probably aware, venture capitalists and entrepreneurs talking about how their (in this case, nonexistent) tech will ‘change the world’ is a red flag that a given venture might be headed for the rocks.

And most crucially, large digital-currency traders agree that the functionality isn’t needed. At best, Bancor is what some in the digital currency and blockchain communities would call “a solution in search of a problem.”

* * *

When Bancor raised an astonishing $153 million during its coin offering in June, it instantly transformed its creators into millionaires.

And after a brief but tantalizing run of gains, it appears Bancor’s investors will now be left holding the bag. The only question now, it seems, is how long before it goes to zero.
 

Solving The Liquidity Problem (Not What You Think!)

By Chris at www.CapitalistExploits.at

Earlier this week I discussed Zimbabwe - the country that took and continues to take ineptitude to a whole new level.

Specifically, we discussed how the liquidity of assets gets impacted when things go really pear shaped. I think it"s worth understanding this process. There are certain dynamics that are very pertinent to countries and economic systems which we"ve come to incorrectly associate with stability, safety, and people who, with their hand on the tiller, really should know better. But based on their actions they clearly don"t.

As mentioned, Zim had a serious problem with liquidity and collateral. Like hydrogen and oxygen they can be tightly interconnected, and when they are (in the right formation) we get something almost miraculous (it keeps us alive) but when they"re not they"re just... meh.

Under the watchful eye of their great leader Zimbabwe had - and in fact still has - a massive problem with its collateral since it became worthless and consequently liquidity dried up.

Liquidity, at its very foundations, is a consequence of trust, and collateral can"t be created or maintained without trust. I suggest reading or re-reading my article on collateral where I argued that the basis of a healthy global financial system is an ability to create collateral - something central banks and governments have been actively destroying but I digress.

Anyway, I promised you in my last article that there was a solution to all of this.

I"ll tell you what I think is going to be THE solution for this sort of problem in the next couple of decades if not sooner, but first (and in order to provide additional context)... let"s cover what solutions did crop up for this truly buggered country because they provide us a glimpse into some of the components necessary to solve these sorts of problems.

Not to belabour the point but Mugabe and his cronies made a truly epic mess of the place.

Everyone became a billionaire and promptly proceeded to starve. Even that mad bitch Kirchner from that other Southern land of great steaks never cocked things up this badly, and she really was one daft bat. Everyone knows that the worst harm you can do to any man, after forcing him to go shopping and spending time with his mother in law (or both together), is to destroy his store of value and means of exchange.

Mugabe did just that.

Add in capital controls and folks had precious few places left to move their capital to.

Enter Old Mutual.

Old Mutual is a holding company involved in asset management, life insurance, banking, and a few other bits and pieces. What matters is that Old Mutual is listed on the LSE, the JSE, and on the Harare Stock exchange. Bingo!

At any given moment in time you could, with the help of Google, figure out what the value of something in Zim was because you could get the quote on Old Mutual stock on any of these exchanges. Old Mutual stock, as well as some other dual listed equities, quickly became currency. You could buy a nice steak in a restaurant in Harare or Bulawayo with the shares.

Here"s OML overlaid with the USD/ZWD. That purple straight line up is when the peg inevitably broke (as all pegs eventually do) and the ZWD was laid to rest into the graveyard that all fiat currencies must finally lay in.

Even the government themselves landed up using Old Mutual stock as a currency:

Old Mutual shares used to pay for electricity imports

The Reserve Bank of Zimbabwe, which had stopped the fungibility of Old Mutual shares, was reported to be buying the shares on the Zimbabwe Stock Exchange and transferring them to the Johannesburg Stock Exchange to pay for electricity imports from South Africa’s Eskom.

 

Old Mutual shares traded in Harare, Johannesburg and London and had become a form of currency.

Press reports said the central bank was buying Old Mutual shares in Harare and transferring them to Johannesburg where they were held in the pension fund of Eskom as collateral.

And this brings me to where things are headed...

You see, the problems that Old Mutual shares solved were: one of transparency, which is sorely needed when the value of the currency you"re transacting in is dropping faster than CNN"s credibility.

In addition to transparency, what"s needed is a relatively frictionless means of transacting. This, when provided, has an exponential multiplier effect on liquidity.

It"s the same reason why it"s easier to sell a loaf of bread in Manhattan than it is a mine in Kinshasa. The loaf of bread requires far fewer licences, deposits in local politicians" Swiss bank accounts, and purchase of "gifts".

With Old Mutual Zimbabweans had a listed equity whose value was easy to compute, already divided (shares), and easily transacted via a broker without additional bribes.

The other thing that Old Mutual provided was a relative store of value.

The shares, after all, represent real assets producing real cashflows, which is just another way of saying fundamentals underpin the company value. And there we are back to trust and collateral creation I spoke about before.

The Future

Stick with me here... Stretch your mind and consider what"s taking place in the ICO (initial coin offering) space right now.

ICOs are amazing financial innovations birthed from blockchain technology that uses a cocktail of cryptology and mathematics stirred into a glass of software. When combined with multiple computers across networks blockchain creates tamper-proof record systems.

It tastes better than anything man"s managed to dream up before. Blockchain technology is central to the business models of all of these ICOs.

What"s very cool, though, is that many of the hurdles associated with doing business with either Ivan the naive Russian or Lucky (no kidding), the newly crowned gold mine owner in Zimbabwe, can largely be eliminated with the use of this technology.

Imagine placing Lucky"s shiny new gold mine on the blockchain with any number of particular conditions (who performs what, when, and why) - all executed via a smart contract.

There is no need for lawyers or government officials to "help" transfer assets, administer scraps of paper for a bribe, or even to negotiate revenue-sharing deals (which is what we did incidentally).

Now, I realise I"m being somewhat simplistic here and you"re not going to eliminate the threat of some lunatic deciding that you look awfully like Cecil Rhodes" offspring and wanting to chop off your head and take any physical asset that you own. But many of the moving pieces which created so much friction can be completely 100% eliminated with blockchain technology.

Now, what happens when more and more assets are placed on a system where they can be seen and transacted by any party anywhere in the world?

When we were looking at assets in Zimbabwe, there were a dozen (maybe) other serious guys hunting around. The time, energy, and cost to get on the ground and do that is not nothing. And yet I know for a fact that there are thousand, probably millions, of others out there who would have liked to participate but didn"t have the time, energy, skills, resources to do so.

When they get a platform on which they can do so rest assured liquidity will come to all manner of assets previously never considered.

How many crazy Russians sweating last night"s vodka out of their pores in saunas in Moscow would take a crack at assets like these if they could do so from their smartphones?

Of course, it"s not just assets in beaten up broken places like Zimbabwe that we"re talking about here this goes for any asset anyplace.

That day is coming, and the answer to my question posed is that liquidity increases due to network effects taking hold.

We"re well past the industrial age here, folks.

Sure, physical assets such as mines, railroads, and power stations are valuable but they"re far less valuable than ever before. This is only going to become more so as robotics, automation, and things like additive printing accelerate, decentralising product creation.

A Question to Ask Yourself

What is the most valuable "stuff" in the world today?

It"s intellectual property.

Don"t believe me?

Take a look at the top 10 most valuable companies in the world today and ask yourself this.

What is the most valuable components to their businesses?

It sure ain"t Apple"s factories in China or Google"s Googleplex in Mountain View.

The value is in IP and that, folks, can be stored and transacted with far greater security, efficiency, speed, transparency, and at lower cost using Blockchain technology than anything else in existence today.

ICO"s for Anything You Can Imagine

Probably the most well known ICO so far has been that of Ethereum, which raised $18 million 3 years ago and they did so by selling tokens that facilitate o­nline contracts. Today, contracts based on the Ethereum protocol are proliferating, and consequently the Ethereum tokens have a market cap of $30 billion as I write this.

The geeks, building, testing, and breaking stuff in the ICO lab right now are busy building the framework and infrastructure for how everything is going to be transacted in our near future. A world where assets and services become currency or quasi currency themselves is where we"re headed... and why the hell not?

Now, before you run out and begin buying a bunch of ICOs realise that probably 90% (I"m being generous here) of these ICOs are going to be 100% garbage, and that"s not counting the ones that will be outright frauds.

What"s going to happen is that a few widows and orphans will lose money which they really can"t afford to lose and stern faced men in pointy shoes who still wear ties will clamp down on how this is done. That hasn"t happened yet.

This is the wild, wild West but realise that even when it does inevitably happen it will only really be the beginning because useful groundbreaking technology once unleashed it"s a lot like toothpaste.

- Chris

"Big companies desperately hoping for blockchain without Bitcoin is exactly like 1994: Can’t we please have online without Internet?" — Marc Andreessen

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