The Regime Test - a Great Filter for the cryptocurrencies

Bitcoin is a decentralized cryptocurrency. Just like gold, nobody owns the system and no single entity controls the market. While some governments might try to restrict its use, at this point the Bitcoin network is so widely distributed that any attempt to shut it down is infeasible.

However, what about other cryptocurrencies out there? How can one be sure the network they use will stick with its tenants and not start acting like a centralized system? How does one know their coins are safe from being forked and erased?

One good indicator of whether a cryptocurrency will stay the course of remaining decentralized or caving in to government's will would be "The Regime Test" - waiting for the currency to be actively used by at least a few people in some sanctioned regime, bring it to the attention of both the system developers and their government and see whether they take any steps to prevent such transactions from taking place on the protocol level, or stand by their network needing to be completely decentralized.

One could see it as "a Great Filter for the cryptocurrencies" - every sufficiently successful cryptocurrency will have to face it on the road of becoming an ubiquitous, global currency. Whether the system passes the filter and remains a decentralized network or caves in to governmental pressures forces the project to take a stand on either side of the debate - it's not an issue that can be swept under the rug for long.

This test is especially important for the Crypto 2.0 systems that allow you to deal in your local currency directly. One can never expect when a new currency would appear from either a sanctioned regime or an extremist group that is suddenly traded against the more established currencies. Whether the system is then forced to ban the issuance of such currencies or lets the gateways deal with that on a case-by-case basis with their users can be an interesting precedent. If say, someone would send a Gold Dinar from a terrorist organization that then gets swapped for USD and lands in someone's account, would that person be potentially investigated as dealing with the terrorists? What about the trader that set up an order that allowed this transfer of funds? Or more interestingly - what if the trade went like this: Gold Dinar -> native token -> USD? Clearly, the native token - USD trader did not have bad intentions when enabling that trade, but the transaction couldn't have happened without them. It might be possible that suddenly the decentralized network would start requiring KYC on the blockchain for performing any sort of trade. Suddenly, the extra KYC Ripple Labs had to go through for their wallet start to pale in comparison.

All in all, the Regime Test is another gantlet for cryptocurrencies to separate the fragile ones destined to fade away from the antifragile ones that have a potential of standing to the challenge. It would be interesting to see some exchanges in places like Iran and Syria to challenge the status quo and show that in today's decentralized world, the money is like the Internet - it cannot be stopped and it flows around barriers. Similarly, it would be great to see a few cryptocurrency networks like Ripple challenged to take a stance on this issue.

PS: Stop the Bitlicense

Restrictive regimes - Iran, Syria, North Korea and New York ;).


A legitimate reason for premining tokens

In the Bitcoin world, the term "premining" is a dirty word and for a good reason. There have been numerous preminted altcoins out there created with the sole purpose of being pumped and then dumped. Some other premined coins gain slightly more credibility by premining their tokens in order to create fiat-denominated cryptos. Then again, we had some big scams in that realm as well.

Over the last few years we also had a few token presales for various app-coins (Augur, MaidSafe, etc.) and platform tokens (Ethereum, Mastercoin, etc.). While the tokens have mostly been advertised as being sold to give you access to the platform / application (possibly to avoid securities regulations), it is clear that a lot of people purchase those tokens in hopes of speculating on their future price.

And lastly, we have the case of Ripple, a Crypto 2.0 platform that was completely premined and whose parent company still owns a vast majority of the XRP tokens. Some have been sold, some have been given away, but the fact still remains - Ripple Labs owns most of those tokens. Some maintain that it can be a long-term business strategy for the company - to hold onto the XRPs for a long time while building up the network to earn money from the appreciated value of the tokens. While this might be a useful stream of revenue, I think there might be a better use for such tokens for both Ripple and similar systems that might come along.

As we have seen recently, a lot of big institutions are waking up to the idea of "a blockchain" and its usefulness for accountability and so on. Ripple is among one of such blockchains pushing for being adopted by big companies like banks or Western Union.

However, from what I heard chatting with some people in the industry talking to such institutions, the hard sell in a lot of cases is the token / coin. Perhaps this is why we see banks not wanting to adopt Bitcoin but being enamoured with a more bland and generic "blockchain" - you need bitcoins to use Bitcoin, and the price of bitcoins fluctuates wildly. The institutions don't want to get exposed to the price swings, so they opt away from such platform. However, what if we could remove that uncertainty altogether? Well, in some cases we might just be able to...

Imagine we have a company that wants to get onto a blockchain and is weighing its options. One of their concerns would be whether a system they build today will hold up in a few years time, both in therms of technical capabilities (will the system be able to expand to meet the growing needs of the network, or will we have another block size debate) and pricing (will the costs stay the same or go up). While the earlier is always up in the air since you can't predict everything, the latter might have a more concrete solution.

If we took a company like Ripple Labs with their big supply of XRPs, they could possibly offer a good solution to the pricing problem for an important enough customer. All they would simply need to do is offer that company a long-term option to buy the tokens at some fixed price. This way, the company could be certain they won't pay more than X to use the system in the future, no matter where the price of XRPs might go in the future. Whatever Ripple Labs might be losing by entering the option contract and possibly selling a fair amount of tokens at a low price years down the line, it could make up in other areas - either integration fees or the rest of their XRPs appreciating in value due to the high profile of customer they brought on.

So all in all, while there are many reasons why premining is a bad practice and should generally be avoided, there are a few reasons why it might be useful for the growth of the system.


Reverse BitPay - receive fiat payments, get paid in Bitcoin

There are a lot of projects in the Bitcoin space that act as Bitcoin to fiat bridges - they accept Bitcoin and sometimes other currencies on your behalf and pay you in fiat at the end of the day. However, there doesn't appear to be anything out there that does the reverse for you - allow you to accept fiat payments and pay you in Bitcoin (the closest would probably be BitWage, but that project is aimed at employers paying their employees, rather than anyone being able to accept wire payments seamlessly). A project like that may be a useful part of the "rebittance" space.

So how might a project like this look? I would imagine it would be a mix between a bank and a Bitcoin exchange. You would sign up for an account, probably verify your identity for KYC purposes, and then you would be ready to start accepting payments. You would receive a segregated bank account number, similarly to what you would get in a bank or a credit union, and whatever funds would be deposited to the account through a wire transfer (or whatever other means commonly used in US and other countries that are averse to wire transfers for some reason) would be instantly converted into BTC at the current rate.

This approach, if deployed in some key countries, would allow for much easier flow of funds internationally. Perhaps paired with a mailbox rental service, you could potentially create a virtual presence in any country, receive local payments and get paid internationally. This would allow you to tap into the global marketplace from anywhere in the world and still get paid in a timely and affordable fashion. You could either keep your earnings in Bitcoin, or convert it on the spot back into your local currency through a rebittance service or perhaps a local exchange.

Now, if you extend this solution into the Crypto 2.0 space, the service would essentially work as a fiat -> fiat-denominated crypto gateway. This would allow you to receive payments in any currency while still having an easy way to convert between everything, rather than using Bitcoin as the intermediate currency.

How likely is it that we will see a project like this any time soon? Pretty unlikely in the form described. You would probably need to start with some forward-looking bank or a credit union that has access to the legacy banking system, figure out whether it is legal for them to set up accounts for entities in another country and see if they would be willing to take the risk associated with handling money like this. Maybe once the crypto space is better established we would see something like this come about, but that can be still ways away.


Relevant discussions:

  • https://www.reddit.com/r/Bitcoin/comments/3hack0/reverse_bitpay_receive_fiat_payments_get_paid_in/
  • https://www.reddit.com/r/CryptoCurrency/comments/3hack1/reverse_bitpay_receive_fiat_payments_get_paid_in/
  • https://twitter.com/MeherRoy/status/633180115183235072


Bitcoin and Beyond - a presentation

Recently, I was invited to be a speaker for the 2015 Annual Gathering of Mensa Canada. Instead of doing the usual "What is Bitcoin" talk and walking people through the basics of how Bitcoin work from a technical standpoint, I decided to do things a bit differently. Instead, I decided to briefly talk about a lot of diverse topics and projects surrounding Bitcoin to hopefully spark some interests and inspire people to research further.

Here is my presentation - Bitcoin and Beyond

It was aimed to be a 40 minute presentation with 20+ minutes to spare for questions and conversation. Some of the projects covered I'm personally not a fan on (I'm looking at you in particular, BTCJam), some are mainly place holders for more general ideas (like ProTip), but I think overall I managed to cover a wide variety of interesting topics.

The presentation itself went fairly smoothly. We had some discussions on the topic of sending money over email (some people weren't aware only some banks can do it through a proprietary technology of Interac and it's not an international service), the question of who do you really buy domains from on Namecoin, etc.

I hope you enjoy the presentation slides and perhaps they inspire you to give a similar presentation yourself in the future ;).

If you'd like me to give a talk at your conference however big or small, let me know and we can figure out the details.