Our CPDP panel on blockchain and copyright is online

Our CPDP 2018 blockchain and copyright panel with Ruslan Nurullaev (International Laboratory for Information Technology and Intellectual Property Law, Higher School of Economics), Primavera De Filippi (CNRS), Susana Nascimento (Joint Research Centre, European Commission), Guido Noto La Diega (Northumbria University), and Alexander Savelyev (Higher School of Economics) is online.

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My slides are here:

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ICO mania will no doubt run its course, as all such financial manias do. But in the meantime, people will be hurt and there will be a painful correction. The one upside is this: As in the wake of the dot-com implosion, serious developers and investors will continue to work to build what will be a more robust network and foundation for the future of the blockchain and cryptocurrencies.



Platinum: Fool’s Gold – Quinlan & Associates

Financial services strategy consulting firm, Quinlan & Associates, has released a landmark 156-page report on the cryptocurrency space, the largest and most detailed examination of the industry to date [LINK TO REPORT PAGE].

The report, titled ‘Fool’s Gold? Unearthing The World of Cryptocurrency’, takes an in-depth look at the fundamental functions of cryptocurrencies and the surrounding ecosystem, powered by blockchain technology.

The report also seeks to demystify the ongoing debate in financial markets (and the wider economy) around the true value of Bitcoin and its future outlook through detailed valuation models.


Cryptocurrencies have been heralded as the revolution of the financial system since its proof of concept by Wei Dai and Nick Szabo in 1998, followed by Satoshi Nakamoto’s whitepaper detailing a ‘peer-to-peer electronic cash system’ and open source code, which is now known as Bitcoin.

Underpinned by blockchain technology, cryptocurrencies promised an end to third party institutions and barriers to financial transactions. And in recent years, they have exploded onto the scene at an exponential rate. At its 2017 peak, there were over 1,300 cryptocurrencies in existence, with a combined market capitalisation of nearly USD 650 billion, rivalling the GDP of nations such as Saudi Arabia. Bitcoin (BTC) itself, the most popular cryptocurrency, has touched market capitalisations similar to economies such as Malaysia and Vietnam.

The sudden rise of the cryptocurrency market has generated heated debate by both believers and critics alike for its value, future potential, and use cases. At the centre of this discussion is BTC, with its meteoric price rise capturing daily headlines in mainstream and social media alike, with speculators rushing to the market in the hopes of joining the wave of overnight millionaires. A plethora of inter-related industries have also spawned, including wallets and payment services, crypto exchanges, and mining, as entrepreneurs across the globe look to capitalise on new revenue pools that have opened up on the back of this technological revolution.

To appreciate the recent rise of cryptocurrencies and their future potential, one must understand the underlying technology, surrounding ecosystem, and the place of cryptocurrencies in financial markets (and the wider economy). Our report details the aforementioned criteria, utilising BTC as the exemplar for current cryptocurrencies in place at the time of writing. We also drew further insights from interviews with a wide range of industry stakeholders, as well as survey responses from over 1,500 individuals working predominantly in financial services, FinTech, consulting, and technology.

Most current iterations of cryptocurrencies are, at their core, meant to operate as currencies. However, currencies have, for many centuries, needed to meet a number of specific criteria to be recognised as such – namely, acting as a unit of account, a medium of exchange, and a store of value. Despite fulfilling most of the characteristics of a traditional fiat currency, cryptocurrencies are largely being utilised as speculative investment assets, leading to considerable volatility in their value. This lack of stability, together with soaring valuations, means they are rarely used for payments. In order to achieve status as a legitimate currency, the public must spend cryptocurrencies widely to determine a credible benchmark for their actual value, encouraging businesses to accept them as a medium of payment (hence making them more liquid in the long run). Until then, most cryptocurrencies, including BTC, will continue to exist in a speculative capacity, with all the undertones of being a bubble.

2017 saw the price of BTC surpass the asset price inflation of the 17th century tulip mania, while rendering “bubbles” such as dotcom a mere blip by comparison. Its strong – albeit slowly unwinding – correlation to alternative cryptocurrencies also indicates a collapse in the price of BTC could lead to a rapid downfall for the broader non-fiat cryptocurrency market.

A number of factors underpinned BTC’s price rise in 2017. In the earlier part of the year, many of the gains could be tied to ongoing discourse around its potential regulatory legitimacy. Since then, however, its popularity – and infamy – has appeared to fuel a widespread “fear of missing out” (FOMO), a classic characteristic of most bubbles. Yet, consensus regarding its future value remains literally non-existent, with valuations ranging from USD 0 to as high as USD 1,000,000. Moreover, the majority of these predictions do not appear to be based on any robust, quantitative methods, but are more a reflection of individual opinion.

To determine whether BTC is indeed a bubble, we looked to calculate its value using two overarching approaches: (1) as an asset; and (2) as a currency.

As an asset, we valued Bitcoin using a cost of production approach and a store of value approach, resulting in values of USD 2,161 and USD 687 respectively. To value BTC as a currency, we estimated its utilisation for both legal, retail transactions payments, as well as payments in the black market. After significant testing, we calculated the price of BTC 1 to be USD 1,780.

Irrespective of the valuation methodology employed, we found the price of BTC deviates significantly from its current price of ~USD 14,000. For the longer-term, we are even less optimistic around the future price of BTC and believe it will ultimately be ruled out as a mainstream form of payment. We see this exerting greater downward pressure on its price and forecast it to trade at ~USD 810 by 2020, if not even lower. We therefore believe that BTC, at its current valuation, is a bubble waiting to burst.

While our views on the price (and future applications of BTC) remain muted, our outlook for the broader cryptocurrency industry remains much more sanguine. Existing cryptocurrencies that were designed to replace fiat currencies, such as BTC, are unlikely to act as viable substitutes to the money or currency system we have in place today, due to their inherent challenge to central bank and government functions – namely, fiscal and monetary policy. However, cryptocurrencies with associated utility applications (such as Ethereum’s ETH), as well as fiat cryptocurrencies attached to a sovereign nation, are likely to grow in significance, given the ability of the underlying blockchain technology to provide meaningful enhancements to current payment systems, as well as their broader applications beyond being used as speculative assets (e.g. facilitating the execution of smart contracts).

Although a sharp decline in the price of BTC in 2018 is likely to take the value of other nonutility cryptocurrencies with it, we see the correlation with utility cryptocurrencies being much less pronounced. While we anticipate valuations to decline in the short-term in response to the widespread unwinding of the digital currency space, valuations of utility cryptocurrencies are likely to recover and dominate the market in the long-term. We forecast total market capitalisation of private cryptocurrencies to be USD 407 billion by 2020. We also see fiat cryptocurrencies gaining momentum as governments accelerate their research and piloting efforts, with potential to be a USD 150 billion market by 2020.

While we believe BTC can largely be viewed as fool’s gold at present, digital currencies will continue to unearth major enhancements to the global payments system in years to come.

Source: Platinum: Fool’s Gold – Quinlan & Associates

Cryptoanarchism and Cryptocurrencies by Usman Chohan :: SSRN

Cryptoanarchism and Cryptocurrencies

9 Pages Posted: 1 Dec 2017

Usman W. Chohan

University of New South Wales (UNSW), UNSW Business School

Date Written: November 27, 2017


This paper examines the infusion of Cryptoanarchist philosophy in the construction and dissemination of cryptocurrencies, in light of the breakneck growth of these non-traditional financial instruments, and their perceived importance in transforming international monetary structures.

Source: Cryptoanarchism and Cryptocurrencies by Usman Chohan :: SSRN

Is the Bitcoin Bubble the New ‘Subprime Mortgage’ Bomb?

Bitcoin as ‘Digital Tulips Bitcoin demand and price appreciation may also be understood as the consequence of the historic levels of excess liquidity in financial markets today. Like technology forces, that liquidity is the second fundamental force behind its bubble. To explain the fundamental role of excess liquidity driving the bubble, one should understand Bitcoin as ‘digital tulips’, to employ a metaphor.The Bitcoin bubble is not much different from the 17th century Dutch tulip bulb mania. Tulips had no intrinsic use value but did have a ‘store of value’ simply because Dutch society of financial speculators assigned and accepted it as having such. Once the price of tulips collapsed, however, it no longer had any form of value, save for horticultural enthusiasts.What fundamentally drove the tulip bubble was the massive inflow of money capital to Holland that came from its colonial trade in spices and other commodities in Asia. The excess liquidity generated could not be fully re-invested in real projects in Holland. When that happens, holders of the excess liquidity create new financial markets in which to invest the liquidity—not unlike what’s happened in recent decades with the rise of unregulated global shadow banking, financial engineering of new securities, proliferating liquid markets in which securities are exchanged, and a new layer of professional financial elite as ‘agents’ behind the proliferating new markets for the new securities.Bitcoin Potential Contagion Effects to Other MarketsA subject of current debate is whether Bitcoin and other cryptos can destabilize other financial asset markets and therefore the banking system in turn, in effect provoking a 2008-09 like financial crisis………….Deniers of the prospect point to the fact that Cryptos constitute only about $400 billion in market capitalization today. That is dwarfed by the $55 Trillion equities and $94 trillion bond markets. The ‘tail’ cannot wag the dog, it is argued. But quantitative measures are irrelevant. What matters is investor psychology. ……For example, should cryptos develop their own ETFs, a collapse of crypto ETFs might very easily spill over to stock and bond ETFs—which are a source themselves of inherent instability today in the equities market. A related contagion effect may occur within the Clearing Houses themselves. If trading in Bitcoin and cryptos as a commodity becomes particularly large, and then the price collapses deeply and at a rapid rate, it might well raise issues of Clearing House liquidity available for non-crypto commodities trading. A bitcoin-crypto crash could thus have a contagion effect on other commodity prices; or on ETFs in general and thus stock and bond ETF prices.”

Source: Is the Bitcoin Bubble the New ‘Subprime Mortgage’ Bomb?

Did Bitcoin just prove it can’t scale? | Hacker News

If proof of stake proves itself to actually work, Bitcoin will adopt it. Migrating a 200 billion dollar network to an untested PoW proposal would be irresponsible.Arbitrarily increasing blocksize without addressing propagation delay and centralization impacts is also irresponsible.Bitcoin has been tirelessly working on the scaling problem in a responsible way. SegWit will allow up to 12t/s. Mimble Wimble and Schnorr Signatures will further compress transaction size and increase t/s to roughly 20t/s. All this without increasing propagation delay (increasing blocksize).Lightning network further reduces the number of onchain transactions necessary.Rootstock adds ethereum compatible smart contracts to bitcoin as a side chain.All these technologies responsibly scale Bitcoin. Your comment implies Bitcoin is stagnant which to me implies you don’t know what you’re talking about.reply PaulRobinson 1 day ago [-]PoS will never be adopted by Bitcoin. The mining pools that have invested in PoW won’t allow it.Every attempt to date to improve transaction rates on BTC have been hampered by a small group of developers who have a vested interest in it not scaling for reasons explained here: https://www.reddit.com/r/BitcoinMarkets/comments/6rxw7k/info…Bitcoin won’t get any of the improvements you hope it will because there is too much money vested in keeping it exactly how it is today.

Source: Did Bitcoin just prove it can’t scale? | Hacker News