How to Run Bitcoin as a Tor Hidden Service on Ubuntu
Why should you run a Bitcoin hidden service on your knot?
* It increases the privacy of other Bitcoin users who are anonymizing their deeds via Tor. Specifically, it is a countermeasure to many of the “network observer” attacks listed on the Open Bitcoin Privacy Project’s threat model.
* It makes your own knot more sturdy against Sybil attacks and network partitions.
* It doesn’t require much more computational resources to run, just the one-time setup cost of configuring your machine.
There are several ways that you can configure a Bitcoin knot to connect to Tor that are outlined in the documentation; for the purpose of this guide we are focused on the third option: “automatically listen on Tor.”
As of Bitcoin Core 0.12, a knot will automatically run a hidden service if it is able to connect to a local Tor daemon. However, we have to make sure that a few things are configured correctly so that the knot and daemon can talk to each other.
Very first we need to go after the instructions to install Tor. We’ll need to know the codename of the Ubuntu release:
Now we can install Tor; substitute <codename> with your version.
Add these two lines to the file and save it:
Now that Tor is installed and running, check the configuration:
Ensure that the following lines are (anywhere) in this config file:
If any of those lines were missing, save the config file and restart the Tor daemon via:
Now we need to make sure that the linux user that runs the bitcoind process has access to read the tor authentication cookie. You can determine the name of the Tor user via:
Now modify the user that runs bitcoind on your machine to be a member of the Tor group:
At this point (just to be safe) you should open a fresh terminal window / SSH session to ensure that the bitcoind user has the correct permissions. In the fresh window, you can check the permissions via:
If your user is in the tor group, now we can commence bitcoind. Make sure to stop it very first if it’s presently running.
Now check the bitcoin log to make sure the configuration works:
You should see output like so:
If you see this error:
Then you didn’t configure Tor’s deb repository correctly and accidentally installed tor from Ubuntu’s out-of-date repository. You’ll need to “sudo apt-get eliminate tor” and reconfigure the repository before reinstalling it.
If you see this error:
Then your tor-service-defaults-torrc file is misconfigured or you left behind to restart the daemon to make the switches take effect.
If you see this error:
Then you did not correctly add the linux user that runs bitcoind to the tor group.
Otherwise, if everything looks good, visit https://bitnodes.21.co/ and use the “check node” implement to make sure that it’s accepting connections.
If bitnodes is able to connect, you can optionally click on the green link that shows up for your node’s status, scroll to the bottom of your node’s status page, and input your email address to receive alerts if bitnodes ever has issues connecting to your node’s hidden service.
LINK is an Ethereum blockchain. A blockchain is a collective database that has a built-in cryptocurrency that is used to financially incentivize the neutrality of the database. No-one can be in charge of a blockchain.
The very first blockchain was called Bitcoin. Pretty much the only thing in the Bitcoin database is how much Bitcoin each account has.
Ethereum takes this concept much further. Computer programs called brainy contracts can be uploaded into the blockchain and these programs can then store data in the database that everyone has a copy of.
Many big projects are deployed on the Ethereum blockchain. But this presents a problem. One must assume that every software project has fatal bugs that will need to be stationary once they are discovered. Bitcoin had fatal problems early on that needed to be stationary and so did Ethereum.
Unluckily, when the projects that are deployed on Ethereum need to be stationary they will have a very hard time because they will need to coax the entire blockchain to deploy their fix. This was the problem with The DAO crowdfunding project. An attacker stole $150m because of a bug in the clever contract. In attempting to fix this problem the Ethereum was split into two blockchains: Ethereum and Ethereum Classic.
The only purpose of the LINK blockchain is to run LINK. This means that whenever there is a problem that can only be stationary with a hard fork, it will not be difficult to coax the LINK community to adopt it.
The cryptocurrency of the LINK blockchain is also called LINK.
The principle brainy contract on the LINK blockchain is BlobStore . It uses IPFS as the underlying storage layer. Anyone can store a blob of data and get back a blobId . This data is publically readable to everyone.
BlobStore has a rudimentary revisioning system so blobs can be updated while retaining their blobId and revision history.
Google Protocol Buffers¶
In order for the data stored in BlobStore to have meaning, there must be some sort of schema. Google Protocol Buffers (Protobuf) is ideal for this. It has an upgradable schema system. This means that LINK has a system of content type inheritance. A standardized story type could be extended with fresh fields and still be readable by software that only knows how to read standard stories.
Anyone can make a fresh type. Example types are user profiles, media metadata, tweets, reddit posts, blog posts, business information, reviews, etc.
Protobuf encodes the data very tightly. This data is then compressed with Google Brotli. This minimizes the cost of storing information on LINK.
Extra wise contracts¶
Anyone can deploy extra brainy contracts onto the LINK blockchain. An significant example would be a feed contract that would provide functionality akin to RSS / Twitter / YouTube.
Other examples would be contracts to vote for content or tag content.
In July of 2014, Facebook acquired virtual reality headset company Oculus Rift for around $Two billion. One of the most successful crowdfunded companies of all time, Oculus raised almost $Two.Four billion on the popular crowdfunding platform, Kickstarter.
Sounds like a excellent success story in crowdfunding, but here’s the catch: Kickstarter investors witnessed hardly a dime from the lucrative buyout.
That’s because traditional crowdfunding platforms like Kickstarter are middlemen, set up to prize Kickstarter participants with things like tiered promotional items, and in the case of Oculus, early access to or discounts on the product. As it stands now, crowdfunding a startup gets platform investors just about anything except an actual lump of the company.
But that’s all set to switch this year. The federal Jumpstart Our Business Startups (JOBS) Act has provisions set to kick in that will permit crowdfunded startups to issue equity directly to their investors. Financial technology companies are ready to stir quickly, seeking to leverage digital currencies and innovations like bitcoin and the blockchain to create fully digital stock offerings for investors. Simply put, they want to cut out intermediaries like Kickstarter to provide investor with direct access and greater comebacks.
Here’s a look at what some of the early leaders in the space are doing, and how digital currency could be a major game changer to equity crowdfunding in two thousand sixteen and beyond.
True Equity Crowdfunding is On The Way
While the regulatory framework for equity crowdfunding in the United States has only recently been codified, it will set the table for existing platforms like Seedrs and Crowdcube to come in the marketplace. Both companies have been operating in the United Kingdom for several years, as UK regulators have made it a point to work with fintech companies early on and implement favorable frameworks for their development.
Seedrs goes far beyond the Kickstarter model, permitting different shareholder equity models such as “funds” of startups (investors receive stock in a basket of startups, similar to a mutual fund) and convertible notes. With Crowdcube, investors can choose to fund businesses with a choice of equity or debt. Neither of these companies are issuing equity in digital currency (yet), but the synergies are becoming apparent as bitcoin-related startups like Bitreserve are using these platforms to raise money for their businesses.
Digital Equity Can Be Issued with the Counterparty Protocol
Also known as cryptocurrency, digital money like bitcoin is totally virtual and has a cap on the total amount that can be in circulation at any given time. Users can hold their bitcoin, exchange it into fiat currency or spend it on goods or services from retailers that accept bitcoin. Major retailers like Amazon, CVS and Target are among those that now accept bitcoin as payment. All transactions are secure and verifiable through a public digital ledger known as the blockchain, which presents several unique opportunities in terms of equity crowdfunding.
This is largely due in part to what’s known as the blockchain’s Counterparty Protocol, an API that permits assets like equity shares and dividends to be created and exchanged using bitcoin or other digital currency. Fueled by the open source Counterparty Foundation, startups can create their own digital tokens indicating various assets (such as shares of stock) and issue those assets directly to their crowdfunding shareholders’ bitcoin wallets. Albeit any startup can finish this process independently, there is a high amount of trust involved in these transactions, with a certain amount of risk on both sides of the equation. Startups like Tokenly are emerging to bridge the gap to make these counterparty equity transaction more secure, effortless and semi-transparent.
Improved Investor Certainty and Participation on the Blockchain
Digital currency innovation has become increasingly ambitious over the last few years. Ethereum, in particular, has created its own bitcoin derivative called Ether. The express purpose of Ether is not to supplant bitcoin as a digital currency, but to create a better way for the creation and exchange of tokens like crowdfunded equity shares. Because Ethereum is capable of creating an entire Democratic Autonomous Organization (DAO) on the blockchain, startups can basically automate the financial administration of their company, including equity shareholder participation. When a company needs to take a vote from shareholders, for example, the entire process can be finished within Ethereum by identifying shareholders via their unique shareholder token and thereby permitting votes to be cast digitally on the blockchain.
The result is that when companies choose to crowdfund on Ethereum, they can issue equity shares in the form of tokens with pre-set rules and goals regarding when and how much investors will receive comes back based on their initial investment. Digix, a startup that backs shares of gold with cryptocurrency, was recently one of the very first companies to crowdsale their tokens on Ethereum’s DAO. In just under twelve hours Digix reached its crowdfunding purpose of $Five.Five million, with investors receiving a token tied to a specific amount of physical gold. The exact same process can be applied to equity crowdfunding of all shapes and sizes, providing investors a verified share of the company along with certainty (based on public DAO rules) as to when they’ll see a comeback.
So what does it all mean for the future of equity crowdfunding? The point is that, while traditional crowdfunding might be joy and rewarding in an intrinsic sense, there are severe limitations on the extrinsic financial prizes investors can receive. With innovations like counterparty equity and DAOs on the blockchain, fintech innovators are already on the stir to ensure investors get more from their crowdfunding efforts than just a free t-shirt.
This question has been asked by every futurist research lab in many of the largest banks, central banks, financial institutions, think tanks, consulting firms and government committees around the world.
R3CEV, a consortium effort financed by some of the world’s largest banks, is busy attempting to response this question. Goldman Sachs, McKinsey Consulting and Consumers’ Research have all written excellent reports on this question. The UK Government, the Senates of the US, Canada, Australia and the EU have all made inquiries along these lines.
Many startups also produce white papers concerning their particular innovation or use of blockchain technology, and often include the larger social question: “How this will switch things?”
Much of this research underlines four major areas of switch:
Infrastructure for cross-border transactions
The digital revolution has totally transformed media, as we all know. It’s had an effect in the finance industry as well. Of course, financial institutions use computers. They used them for databases in the 1970s and 1980s, they made web pages in the 1990s and they migrated to mobile apps in the fresh millennium.
But the digital revolution has not yet revolutionized cross-border transactions. Western Union remains a big name, running much the same business they always have. Banks proceed to use a complicated infrastructure for elementary transactions, like sending money abroad.
The following infographic, ready by Richard Gendal Brown, shows the infrastructure and intermediaries in cross-border banking that have been in place since the ’70s.
This architecture is the result of the finance industry using very secured private databases. Digitization has meant we merely sort information into private databases much swifter.
Blockchain technology permits for financial institutions to create direct links inbetween each other, avoiding correspondent banking. R3’s principal product to date, Corda, aims at correspondent banking. Corda is a play on words incorporating ‘accord’ (agreement) and ‘cord’ (the straightest line inbetween two points in a circle).
In Corda’s case, the circle is made up of banks who would use a collective ledger for transactions, contracts and significant documents.
Brown used to work on IBM’s blockchain products, but has since moved over to work at R3CEV.
Rivaling financial institutions could use this common database to keep track of the execution, clearing and settlement of transactions without the need to involve any central database or management system. In brief, the banks will be able to formalize and secure digital relationships inbetween themselves in ways they could not before.
In the above representation, that means correspondent banking agreements and the RTGS could both be shortcutted.
Transactions can occur directly inbetween two parties on a frictionless P2P basis. Ripple, a permissioned blockchain, is built to solve many of these problems.
Digital assets as a class
Bitcoin created something unique: digital property.
But bitcoin did something fresh: it created uncopyable digital code.
So, for the very first time since bits and bytes were invented, there was a way to own something digital that couldn’t be copied. This gave the digital code value. To this day, bitcoin’s value is based on the capacity of its blockchain to prevent double-spending and the creation of counterfeit coins.
With this in mind, bitcoin developers have pioneered coloured coins that can act as stock in a company. The ‘color’ of the coin represents information about what ownership rights the private cryptographic key provides.
After receiving SEC permission, online retail giant Overstock announced it would issue public shares of company stock on its tØ blockchain platform. We’ve also seen the advent of ‘initial coin offerings’ (ICOs) and ‘appcoins’ (cryptocurrencies native to an app that help fund development of the project).
These examples are only part of the story for blockchains in digital assets. They can be the asset, but blockchains can also be used to run the market itself.
Basically, these efforts are treating digital assets as a bearer instrument, which is a broad and dexterous application.
Governance and markets
This capability, however, extends beyond just recording transactions. Nasdaq, for example, was one of the very first to build a platform enabling private companies to issue and trade shares using a blockchain.
Other developers are coding financial instruments that can be pre-programed to carry out corporate deeds and business logic.
In 2016, a blockchain project called The DAO, running on the ethereum blockchain, was launched with the aim of emulating a crowdfunding market. Your percentage of contribution to the fund represented the percentage vote in how the total fund would be spent.
Regulatory reporting and compliance
Blockchains can serve as a fully semitransparent and accessible system of record for regulators. The can also be coded to authorize transactions which obey with regulatory reporting.
For example, banks have severe reporting obligations to agencies such as FinCEN. Every single time they authorize a transaction of more than $Ten,000, they must report the information to FinCEN, who stores it for use as an anti-money laundering database.
Clearing and Settlement
With paper-world trading, the time framework for clearing and settlement of a transaction is generally referred to as ‘T+Three’ – that is, three days after the trade (T), the transaction is lodged.
With blockchain technology, the entire lifecycle of a trade – execution, clearing and settlement – occurs at the trade stage. With a digital asset, trade is settlement, and the cryptographic keys and digital ownership they control can lower post-trade latency and counterparty risk.
Accounting and auditing
Whereas most databases are snapshots of a moment in time, blockchain databases are built from their own transaction history. They are a database with context, a history of itself, a self-contained system of record.
The implications for auditing and accounting are profound.
We have been increasingly hearing, reading and talking about blockchain technology in the latest months, especially in the financial industry, where it is thought to become a game changer. It can provide extra efficiency and security, and may even fully disrupt the entire industry.
Blockchain technology turns out to be of similar interest in the utilities business. Utilities and banks are alike in the way they are centralized, powerfully regulated structures with elaborate processes. Utilities are a favorable environment for the deployment of blockchain technology.
Indeed, we are watching growing numbers of pilot projects involving blockchain in the energy industry, some of them instigated by large companies such as RWE, startups like LO3 Energy and its experiment in Brooklyn, NYC, and even stock exchange operators such as the NASDAQ.
To understand these projects and what lies in the background, it is necessary to look at the basic concepts of blockchain, and how its characteristics provide assets for the transformations of the energy landscape.
1. Blockchain Technology
Blockchain technology has inherent characteristics that can be of use to many sectors, including the energy sector. Going over these characteristics will help in the evaluation of its potential in the energy landscape.
What is blockchain and how does it work?
A blockchain is a distributed, secure and see-through system of record comprising a log of transactions collective across a digital network. Each knot on the network contains a finish replica of the blockchain data. The knots are held by “miners”.
Figure1– Each knot on the network contains a finish replica of the blockchain data. The knots are held by “miners”
Miners are responsible for authenticating and validating transactions, and then create blocks to be added to the blockchain.
FigureTwo– A transaction on a blockchain
What are their main applications?
Blockchain technology’s main applications are:
– Distributed ledger : insure traceability and certification of legal documents of all types
– Assets transfer : peer-to-peer transactions of assets of all types, without intermediary
Blockchains are the very first systems to overcome limitations of synchronizing databases, so that individuals and companies can store data and run applications with 100% reliability. The potential cost savings introduced by a single global digitized ledger are significant.
This core functionality – decentralized database – can be beefed up by integrating mechanisms that make possible to carry out decentralized transactions inbetween two or more users under specific conditions defined previously. This is what we call brainy contracts. In this type of transaction, the terms of the contract are to be accepted previously by the users and the execution of the contract is then automatized. In a brainy contract, rules are defined individually (quantity, price, quality) and thanks to blockchain technology, there is an autonomous matching inbetween the parties, for example inbetween distributed providers and prospective customers.
An identically significant benefit is that the ledger will produce a golden source of data: useful for business owners, auditors and regulators alike.
Blockchains have a broad range of applications, some already in use like in finance with the cryptocurrency bitcoin (for more details, see our explore in the BearingPoint Institute : https://www.bearingpointinstitute.com/en/can-financial-services-industry-master-cryptofinance), others being just experiments or ideas as it is the case for most projects in the energy sector. The outlook is broad when we think of the possibilities of wise contracts in the energy sector. It represents a potential for secular switch to the status quo, in which every player perceives an chance to play a fresh role in the global energy system.
FigureThree– Main applications and functionalities of blockchain technology
The capability of blockchain to enable a decentralized and autonomous grid can explain why blockchain technology caught the attention of all energy companies in the latest times.
Two. Use cases of blockchain technology in the energy sector
After this introduction to blockchain, we can now analyze how it can be an response to the current needs of the energy sector in the lights of the current switches it is going through.
Blockchain technology may response the crucial need of authentication of contracts and certificates addressed by the energy sector
One of the assets of blockchain technology is database management, which is semi-transparent and cannot be violated. This asset could be used in systems that need certifications and traceability.
In France and several other European countries, Energy Saving Certificates or “White Certificates” are one of the main devices in their policies that aim for the reduction of energy consumption.
The idea is that energy producers, suppliers or distributors (electro-therapy, gas, fuel, fever, cold …) are shoved to promote energy efficiency deeds actively. An amount of obligations is defined in regulations over a specified period of time (obligations are distributed amongst producers according to their sales / energy deliverance). Each activity indicating the amount of energy savings has to be described and filed, and can then be managed by the authorities. At the end of the specified period, “obliged” producers have to justify the accomplishment of their obligations, or pay penalties otherwise. White certificates are tradable (For more details: http://www.developpement-durable.gouv.fr/-Certificats-d-economies-d-energie,188-.html)
This system is fairly analogous to the concept of CO2 emissions trading. Other types of certificates are also now delivered to track the production and consumption of renewable and / or recovered energy (green electro-therapy, biomethane, etc.).
These certificates are instruments supposed to ensure a specified amount of energy savings, emission, or renewable energy consumption has been achieved. Each certificate has to be unique and traceable, assuring that the influence of the related activity has not been accounted for elsewhere.
Therefore, authorities have to track the evolution of these certificates in registers. It has been noticed that authorities have a lot on their arms and sometimes lack the time to control filed deeds and work on the evolution of the mechanism (corresponding regulations are often revised), in addition to managing the registers.
In the future, registers could be managed via blockchains, requiring little activity from the authorities whilst being accessible to all players in the Energy sector (the State, the public, producers, consumers, emitters, …), ensuring the uniqueness and traceability of certificates, and even managing the certificates’ trading (certificates’ markets). The benefit is for all players, since they would be able to concentrate on deeds contributing to the energy transition.
There is no denying that there is still much to be done in the field since regulation weighs strenuously on any innovation. Each country has its own national registers for the White Certificates, which meet different rules depending on the geographical location, which entails enormous costs for the utilities. For example, if a utility has wind turbines in Belgium, solar panels in Wallonia, and biomass in Brussels, it must have three different national White Certificates management registers, and as many dedicated teams and therefore the costs rocket. Blockchain would here be a flawless example of application to disintermediate all these actors, and thus reduce the risk and the costs, except that the main actor is the State, and therefore this implies to switch the regulation very first.
NASDAQ and its service LINQ used the authentication of the certification of solar power
The stock exchange operator, Nasdaq, unveiled in May two thousand sixteen a service that lets solar power generators sell certificates thanks to its Linq blockchain service (for more details: http://ir.nasdaq.com/releasedetail.cfm?ReleaseID=948326).
In this system, the solar panels have to be connected to the Internet with technology provided by Filament, a Nevada-based blockchain start-up. Through an API pull from NASDAQ’s blockchain-based private markets platform Linq, anonymous certificates are created and can be sold to anyone who wishes to subsidize solar energy. The solar panels are hard-wired into the IoT device through a converter which enables Linq to measure the wattage they’re putting out and producing into the grid.
Blockchain technology may ease the billing process for utilities and reduce energy bills for consumers thanks to wise metering
The electric current clever meter is the keystone inbetween suppliers and customers of the brainy grid, and concentrates all the transaction, confidence and security stakes associated with an ever more intelligent and lithe energy.
Brainy meters associated with the transparency of blockchain create an environment where transactions are open and secure:
– Reduce risk of fraud / theft
– Help manage debt recovery
– Increase transparency in price switches and fees
A brainy grid network supported by blockchain technology would ensure an efficient local relationship inbetween production and consumption of renewable energy. Participants could publicly track their energy usage and production, and sell any unused energy to other participants. They would also have the capability to reduce their energy bills by making more informed purchasing decisions, avoiding consumption peaks or switching into a lower subscription. Brainy meters and blockchain technology would ensure a simplified billing process (efficiency, transparency) and quicker switching times.
A blockchain solution identifying where the energy is coming from, at what unit price and any mark-up passed to the consumer would result in more competitive pricing and in better integrity from public perception.
BlockCharge: EV charging and billing solution
RWE and Slock.it are putting together a decentralized billing system for electrical vehicle charging. It is called BlockCharge. Following the same principle that wandering for telecommunications, it would permit electrical vehicles to charge anywhere (with the help of a brainy ass-plug), and to be billed for the electro-therapy they used in a plain, common, and blockchain-based way. The EVs would interact automatically with stations and the electric current payment process would be autonomous.
The benefits of the project:
– Multiplying charging infrastructures (the use of a wise plus enables to charge a vehicle anywhere)
– Simplifying charging contracts (no need for contract anymore)
– Resolving interoperability issues
– Simplifying the charging process by treating authentication, charging and billing
Blockchain may help the emergence of microsystems based on prosumers
In the energy sector, we are witnessing the development of prosumer characters that is to say individual consumers that are also producing energy (homes with solar panels for example).
In that respect, blockchain technology represents an chance for a broader development of those behaviors by enlargening the number of people who could buy and sell energy directly with a high degree of autonomy.
Indeed, as said in the previous paragraph, blockchain technology should entail major switches since it permits transactions to be carried out directly from peer to peer. No third party intermediaries are required. In theory, we can imagine a market place where consumers exchange their own production without needing energy companies to organize the transactions. It creates a shift from centralized structures (banks, trading platforms, energy companies) towards a decentralized system (peer-to-peer transactions). It would reduce cost and speed up processes. The system would thus become more lithe. Of course, in that model, energy companies are still needed to organize the transfer of energy.
From theory to reality: the emblematic experimentation in Brooklyn
Transactive Grid, the project of the LO3 platform and ConsenSys, has become a fairly famous example of the possible application of blockchain to energy with its pilot experiment in Brooklyn, NYC (for more details: www.brooklynmicrogrid.com). Five “producer” houses, tooled with solar panels, sell their production to five “consumer” houses, on the other side of the street since April 2016. The objective of the experiment lies in the re-appropriation by citizens of their energy production, by the establishment of mini-grids, that is to say, mini autonomous energy communities. For this purpose, sensors record the history of the energy generation at a specific point, and instantaneously record it on blockchain Ethereum. Wise contracts can then govern the rules of use of this energy, and of course the tariffs of producers.
We could thus imagine, like the microgrid in Brooklyn, a proliferation of local decentralized and autonomous microgrids. In local communities, single persons with a single solar panel could thus participate in the end user market. Moreover, we can lightly conceive a system where people with individual solar panel no longer feed their excess energy into the grid but market all their production.
List of potential use cases and associated examples. This list is not exhaustive, as blockchain technology makes it possible to increase efficiency in processes and improve transparency, so it can be considered in numerous applications. Its use will depend on its adoption by the greater mass. At this stage, all projects remain pilots to validate the public interest.
Figure7– Potential use case and examples
Three. Transformations ahead
None of the energy companies presently developing blockchain applications have moved beyond the concept or pilot stage yet. It shows up that those models are difficult to put into practice. Indeed, the actual technology lacks of maturity and is elaborate in its development and implementation, in the energy sector in particular.
Moreover, barriers such as legal and regulatory requirements that blockchain projects must conform with are obstacles that still have to be overcome. The legal and regulatory frameworks still have to be designed to reflect the requirements of decentralized transaction models and provide protection to energy consumers.
However, France is a pioneer in this field, which is encouraging for the development of blockchain technology. Indeed, in July two thousand sixteen the CRE enacted an ordinance on the self-consumption and the pooling of the energy which permits anyone to produce violet wand and sell surplus production to others (neighbors for example). It thus authorizes a collective self-consumption which would react to a local electrical request through a local electrical supply. On December 21, a bill ratifying these ordinances was adopted.
The development of these models is very promising. Blockchain technology is a potential game changer for the energy market and its ecosystem: users, real estate companies, municipalities.
Nevertheless, it is too early to know what role in energy markets blockchain technology is set to play. It may be restricted to database management and transactions processing, but most likely, some broader and more disruptive future awaits.
William Mougayar is the author of “The Business Blockchain” and a board advisor to, and investor in, various blockchain projects and startups (See: Disclosures).
Here, Mougayar argues that the traditional venture capital model is being quickly revolutionised by youthfull upstarts working with cryptocurrencies and blockchain tech.
The decentralization effects of blockchain-based cryptocurrencies are hitting the venture capital industry in more ways than one. Whereas the traditional venture capital industry is boring, the crypto-tech industry has become more arousing.
Actually, I see the two models as diametrically opposed: one is a closed market, predominated by command-and-control practices, led by a few rich people on Sand Hill Road. The other is a widely open global market where anyone can play, and where the gains and risks are more evenly distributed.
This has led to a re-thinking of how startups who are operating in the blockchain space can raise money, and it has potential implications that will revamp the relationships that venture capital firms can hope to strike with these startups.
As an investor, advisor or board member, I have been closely associated with a multiplicity of early stage companies that are tackling the innovation explosion around cryptocurrency and blockchain-based models, and have had the fortunate insights of eyeing where we might be headed.
The upcoming shifts are encapsulated in the following table, covering nine variables.
What is fresh?
Comeback horizon: Whereas the come back horizon for traditional VC funds is squarely in the 7-10 year horizon, we are presently at the beginning of an inflection point in cryptocurrency-led valuations, resulting in much shorter liquidity options for early investors, in the 1-5 year range.
Ownership model: Traditionally, VCs receive preferred shares by buying private equity. With the fresh models, they can acquire shares and/or tokens/cryptocurrency that have been issued by the startup.
Entry phases: Angel, Seed, Early to Late Stages (A-F) are the known trajectories for conventional startup investments. The fresh continuum has another progression lingo with it: pre-mine, genesis, initial cryptocurrency suggesting (ICO), listing on an exchange, or private sale of crypto-tokens directly from the company.
Business model: A traditional startup is typically focused on developing and marketing a tangible product or service. A blockchain-based startup could have a product/service as part of what they are developing, but their stride is best hit when they are also creating a self-sustaining circular economy that is supported by their own currency or tokens, and where there is a transactional loop inbetween earning and spending these tokens within their ecosystem.
Legal structure: Startups typically incorporate as a Limited Liability Corporation (LLC) or any other traditional way according to the corporate laws in their given jurisdiction. In the fresh environment, the LLC could be creating a base open source technology/protocol, but they will run a proprietary separate business on top of it or adjacent to it (e.g. IPFS and Filecoin), or they could create a valuable ecosystem around it (e.g. Ethereum). In extreme cases, the organization is non-registered and operates as a distributed autonomous organization on the blockchain (e.g. BitNation).
Limited playmates mix: The same traditional mix of institutional, high net worth individuals, family offices and funds of funds that typically invest in venture capital funds will be attracted to this emerging segment, only if they are progressive, innovative and forward-thinking, with the capability to allocate discretionary funds under strategic considerations pretexts. In addition, given the more relaxed crowdfunding rules that exist in several jurisdictions around the world, a fresh venture fund could also get a mix of participation from a publicly crowdsourced segment of investors.
Fund currency: In addition to fiat currency, a fresh VC fund could also accept cryptocurrency (especially from the crowdsourced segment), because of the frictionless capabilities that exist for accepting cryptocurrencies online. However, it would be prudent to instantaneously convert these funds into fiat as the initial reference currency for investment vehicles, in order to avoid being caught in cryptocurrency value downturns, and to eliminate any perceived intent of currency speculation which is outside the mandate of a venture capital fund.
Market treatment: The best candidates for this fresh model will be blockchain startups that are purposely creating fresh business models, and not supporting existing ones. The reason is that these fresh business models are more fertile grounds for innovative circular economies, fresh ecosystems, and fresh value creation, which are significant conditions for success.
The nature of blockchain startups is switching, and this switch should be accompanied by an evolution on how they are funded.
A fresh VC fund with the above characteristics has the luxury of having no baggage within an existing Limited Fucking partners Agreement (LPA) where switches may be hard fought. Instead, these elements would be baked as part of the initial LPA, while decently addressing the legal and compliance considerations.
This article was previously published on the author’s blog and has been republished here with permission.
Author’s disclaimer: In no way does this article represent an suggest to sell securities or an advertisement of raising a fresh fund. I have yet to announce anything regarding a fresh fund that I might raise in the future.
The leader in blockchain news, CoinDesk strives to suggest an open platform for dialogue and discussion on all things blockchain by encouraging contributed articles. As such, the opinions voiced in this article are the author’s own and do not necessarily reflect the view of CoinDesk.
It might be too late for bitcoin to save Greece from its currency crisis, but the digital currency is evolving swift enough that there’s a good chance it will help future crises. Christopher Mims, a writer for The Wall Street Journal, claims in today’s edition that digital currency is “at an inflection point” and evolving swifter than most people realize.
“Whatever happens to bitcoin itself, the technology underlying it opens up previously unimagined possibilities for the future of just about anything humans exchange,” Mims stated.
For Greeks to get ahold of bitcoin, they need to buy euros, which is the last thing they want to give up under the current circumstances. There is a daily limit on the number of euros that Greeks can withdraw from banks. The unwillingness to part with euros is why bitcoin today has no bearing on Greece’s situation, Mims noted.
The Block Chain’s ‘Unimaginable Possibilities’
However, block chain technology opens up “unimaginable possibilities” for anything that people exchange. To prove his point, Mims cites continuous interest in bitcoin from large financial institutions such as UBS, the Bank of England, Deloitte and Nasdaq. He also noted that Greece’s former finance minister, Yanis Varoufakis, claimed the country could use bitcoin technology to create a coin. The coin’s value would be assured by future tax revenue.
Michael Casey, a senior adviser to the MIT Media Lab on cryptocurrencies, said the block chain could issue the scrip that Greek companies are presently using to pay suppliers and employees, the article noted. This scrip, which promises to pay back debt as soon as banks unlock a company’s money, is an alternative currency that Greeks are using during the current crisis. The mechanism to issue scrip, according to Casey, would be a fresh technology called “sidechains.” Sidechains are a way to modify bitcoin to permit its use for any transaction, including indicating a national currency.
Cryptocurrencies Could Represent Assets
Greece could create a “collateralized currency” backed by state-owned assets, according to Casey. Cryptocurrencies could represent these assets.
The block chain has the potential democratize the creation of money, Mims noted. “And that, for many observers, is fundamentally what the debate over Greece and the fate of the entire European Union is about,” he stated.
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Fintech: MBA Grads Want To Work In The Blockchain Space — Here’s Why
Fintech: MBA Grads Want To Work In The Blockchain Space — Here’s Why
Growing request for people who understand the business applications of the technology
Written by Seb Murray | MBA Careers | Tuesday 6th June two thousand seventeen 15:31:00 GMT
The number of LinkedIn adverts for blockchain-related jobs has trebled in a year
There is a surge in interest in fintech jobs among graduate business schoolers, and blockchain-related roles are among the most popular, as the space embarks to lure MBA candidates away from traditional careers in financial services.
The number of adverts for blockchain-related jobs posted on the business networking site LinkedIn has trebled over the past year, illustrating the growing request for talent who understand the business applications of the technology that underpins bitcoin.
Business schools say that financial services firms are keen to hire people for blockchain-related roles, as they scramble to corset the power of the technology, which could slash banks’ costs by $20 billion by 2022. Opportunities are also opening up in blockchain startups hoping to pioneer the technology across a diverse range of industries.
“The banks want to have a so-called blockchain tsar at their rigid — someone who can coordinate a multi-disciplinary effort, so their rock hard comes out on the winning side rather than the losing side of blockchain disruption,” said Campbell Harvey, professor of finance at Duke University’s Fuqua School of Business.
“The potential of blockchain shows up to be enormous. Most of the large banks and other financial record-keeping institutions are looking closely at the technology,” added David Yermack, chair of NYU Stern’s finance department. “It may turn out to be as significant as the advent of double-entry bookkeeping in the Renaissance.”
The blockchain is a decentralised settlement technology which powers the issuance of cryptocurrencies. The blockchain rose to prominence with the controversial digital currency bitcoin, but has since been used for a broader range of purposes including speeding up cross-border money transfers and digitizing legal processes.
The number of blockchain adverts on LinkedIn is growing at over 40% per quarter. Almost Ten,000 people on the site list blockchain as a skill, half of them in the technology industry and a quarter in the financial services sector.
Fintech has been one of the fastest-growing recruitment areas at some business schools, with jobs appearing in areas such as peer-to-peer lending and digital payments. “There are many fintech career opportunities available for MBAs,” says Matthew Applegate, VP at Wharton FinTech.
William Kunter joined N26, the German app-only bank, after studying for a business master’s degree at HEC Paris. He was lured there after working for Goldman Sachs. He said: “Fintech is very likely one of the greatest and most dynamic sectors in tech today. It’s attracting a lot of interest and funding. Working in fintech gives you the chance to have a real influence on the day-to-day life of a very large number of people.”
He added that N26 is hiring business school grads to help maintain the company’s rapid growth. “We’re always looking for good candidates. We’re well aware that the success of a startup indeed depends on its capability to hire the best and brightest.”
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Fintech Favorites: Blockchain, the Banks, and the Underbanked
Bye-bye blockchain consortium?
What are blockchain watchers to make of the latest decision by three big banks to withdraw from blockchain consortium, R3?
Goldman Sachs was the very first to break ranks. One of the founding members of R3 in 2014, Goldman let its membership lapse as of the end of October, according to the Wall Street Journal. The withdrawal from R3 was not a reflection of Goldman’s interest in the technology; WSJ reports that the bank resumes to concentrate on blockchain technology internally, pursue patents in the field, and last year was part of the team that invested $50 million in bitcoin startup, Circle Internet Financial.
Santander was 2nd, announcing its decision “within hours” of Goldman Sachs. The Spanish bank has said little about its decision (Santander provided CoinDesk with a nine-word response that confirmed their withdrawal and nothing more). And this past week, Morgan Stanley announced it was leaving R3.
So why are these banks headed for the R3 exits? One argument is that R3 is passing the hat, looking for equity investment in order to take the consortium to the next level. In fact, R3 is said to have lowered its funding target from $200 million to $150 million, and give bank members an equity stake of 60%. In a statement issued the same day as Santander’s announcement, R3 noted that consortium members “all have different capacities and capabilities which naturally switch over time.” If the $150 million fundraising target is not reached, the round will be opened up to “the strategic investors.”
Blockchain and the underbanked
The role of the blockchain in supporting underserved communities is more than social justice hype. This week, more than one hundred migrant workers from Myanmar concluded a test of a blockchain remittance solution developed by Everex. The mobile payments app is based on the Ethereum blockchain, and more than 850,000 Thai baht (approximately $24,000) was transferred.
A fresh paper by the Charities Aid Foundation cites blockchain technology as a way to help charities better manage donations, treat complicated accounting challenges, as well as conduct research. The report, “Providing Unchained—Philanthropy and the Blockchain,” discusses a multiplicity of ways the blockchain technology could be put to use, including enabling the donation of intangible assets such as intellectual property, “radical transparency,” and clever, “self-governing contracts.”
RJ Krawiec and Jason Killmeyer took to TechCrunch recently to look at ways that blockchain technology can be used to improve government services. “Blockchain is already driving a tremendous amount of investment and innovation across a broad range of industries, commencing with financial services,” the pair wrote. “The government could be next.”
For Krawiec and Killmeyer, the just-concluded presidential election season in the U.S. provides one example of how blockchain technology’s “unique and seemingly contradictory combination of attributes” could be put to use. Digital voting and identification, electronic health records, and “audit-free tax audits” were among the use-cases the two suggested could be right around the corner given a reasonably motivated public sector.
Bitcoin’s mini boom
Blockchain opened its ten millionth digital wallet this week. Peter Smith, Blockchain co-founder and CEO, credited the election victory of President-elect Trump for the surge in interest in the alt-currency. Quoted in Business Insider, Smith said, “People are basically hedging against economic instability. It’s a worrying time to be holding a lot of British pound, or if you’re America, people flee to safe-haven assets. Bitcoin is one of those.”
Part of the build up in bitcoin prices is also widely believed to be a function of India’s rumored decision to ban the importation of gold. The country is one of the largest gold importers in the world, buying seven hundred tons a year. But efforts to fight money-laundering and reduce corruption may lead the Indian government to put limitations on gold imports, as criminals shift toward alternative “safe haven” assets like gold.
A bitcoin pioneer’s blockchain-based comeback
Bitcoin pioneer Charlie Shrem has launched Intellisys Capital, a startup that will suggest a private equity investment portfolio called Mainstream Investment that will issue tokens signifying “blockchain-based shares” in a multitude of companies in manufacturing, real estate, and other industries.
“The strategy is designed to create symbiosis inbetween blockchain assets and traditional finance and to help many traditional sectors stir toward state-of-the-art improvement,” Shrem’s company said in a statement.
Shrem was arrested and convicted of money laundering and acting as an unlicensed money transmitter in 2014. He was released from a high-security federal prison camp this spring. The case was controversial, with some in the cryptocurrency community insisting Shrem did nothing wrong.
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Fidelity becomes very first asset manager to join blockchain group IC3
Fresh YORK (Reuters) – Fidelity Investments Inc has become the very first financial institution to join the Initiative for CryptoCurrencies & Contracts, a group of academic institutions and technology companies looking to develop blockchain-based technology.
Fidelity Labs, the innovation arm of asset manager Fidelity, will be a member of IC3 along with Cornell University, University of California at Berkeley, University of Illinois at Urbana–Champaign, the Technion, IBM Corp and Intel Corp, the company said in a statement.
The Boston-based fund manager will collaborate with the group to develop blockchain programs to help make financial systems more efficient and secure.
Blockchain, which very first emerged as the system underpinning cryptocurrency bitcoin, is a distributed record of transactions that is maintained by a network of computers, rather than a centralized authority.
Over the past two years, financial institutions have been ramping up their investments in the technology in the hopes that it can help the make some of its processes simpler and cheaper. Potential use cases range from systems to manage international payments, to programs to lodge securities trades.
In a bid to accelerate development and adoption of blockchain, companies have been joining compels in several industry consortia and groups.
Banks have been more vocal about their efforts than asset managers, with most large lenders having joined a group led by Fresh York-based startup R3. Most recently a group of thirty companies, including several banks, launched a fresh blockchain consortium called the Enterprise Ethereum Alliance.
“What IC3 brings is that academic computer science legacy that can help us explore how this technology can be applied,” said Hadley Stern, senior vice president at Fidelity Labs, explaining why the asset manager had chosen the group.
Use cases the asset manager is interested include the settlement of repurchase agreements transactions, Stern said.
Despite the excitement around blockchain, the technology is still in its early days and proponents warn that it may take years before financial institutions can fully reap its benefits.
IC3, which is based at the Jacobs Technion-Cornell Institute at Cornell Tech in Fresh York City, conducts research aimed at developing blockchain that meets the standards needed to be deployed by businesses.
“Expected outcomes of our work include fresh blockchain and wise contract technologies that are secure, incrementally deployable, and efficient to meet the industry’s needs,” said Emin Gün Sirer, co-director of IC3 and a professor at Cornell University in Ithaca, Fresh York
Reporting by Anna Irrera; Editing by Lisa Shumaker