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Friday, January 19, 2018

Colorado Considering Blockchain Solution To State Data Storage And Sharing - But What Is Blockchain Anyway?

Greetings and happy Friday to everyone. More blockchain in the American news today, with Colorado considering the use of blockchain technology to improve data security for state records: https://www.coindesk.com/colorado-new-bill-encourages-state-to-adopt-blockchain-for-data-security

With all this talk of blockchain and distributed ledgers,etc., several folks may be wondering "What is this blockchain stuff we keep hearing about?"  I will attempt to describe it here and then comment on the Colorado news.

First and foremost, to understand blockchain you must understand what is distributed ledger technology.  Blockchain applies this technology as its core.  Distributed ledger technology (DLT) is a mechanism by which all transactions/interactions in a system are displayed to anyone with viewing access to that system.  All users/viewers have access to instantly updated copies and records of all transactions in the system, transactions are irreversible, transactions are reconciled by the use of encryption technology, and there are different levels of access control.  Blockchain basically replaces the usual trusted third party custodian (for example a bank or other intermediary) with "miners" who validate transactions and allow them to proceed if they are validated.

Think of it as sending money via a transfer without having to use the bank at all, or waiting 2-5 business days for the money to hit the recipient account. Using blockchain the money can be sent directly by one party to another without using a middleman or paying hefty transaction fees, and the money arrives instantaneously.  The transaction is verified via a series of complicated proofs undertaken by miners, none knowing what they are doing the proofs for or in what context the proofs relate.  They just do the proofs blindly in return for being compensated.  The proofs take the form of cryptography and computer algorithms called "hashing" that do not allow miners to trace their work back to the underlying transactions whatsoever.

There are three types of DLT: (1) permissioned and private ledgers (i.e., used by a private firm or government institution) that only allow specific parties to view the ledger and enter blockchain data; (2) permissioned and public ledgers that allow "anyone" to view the ledger, but only trusted users can enter blockchain data (Ripple the cryptocurrency is an example of this); and (3) unpermissioned and public ledgers that alllow anyone to view and enter blockchain data (Bitcoin is the biggest example).

There are also three types of blockchain to date.  Blockchain 1.0 relates to DLT being used for cryptocurrencies.  Blockchain 2.0 relates to "smart contracts" that use DLT for all financial applications other than money transfers.  Blockchain 3.0 relates to government and legal applications, healthcare applications, and the Internet Of Things.

With that said, and without knowing more about the Colorado blockchain proposal at issue, it is likely that they are talking about Blockchain 3.0 being used in combination with some form of permissioned DLT ledger.  This can speed up the data transfer process for records, permits and other paperwork by removing the current bureaucratic middlemen.  It also can provide more privacy to users and record holders, whose sensitive records and transactions could be hacked from the middleman's database or exposed by other means.  Colorado can solve waiting lines at government agencies by moving many processes online using blockchain.

Blockchain is moving into numerous areas and processes in the public and private sector, it is not only about cryptocurrencies and the price of Bitcoin.  It is about storage and distribution of data, of clearing transactions instantaneously and matching orders correctly so they cannot be faked.  It will be very cool to see how this platform gradually weaves itself into the fabric of our daily lives at many levels, hopefully for the better!

Friday, January 12, 2018

Green Energy Blockchain Project Launches In Estonia

WePower, a green energy blockchain trading platform, has announced a joint pilot project with an independent gas and electricity provider to "tokenize" energy data in Estonia on the blockchain. The the project will be a real-world test using anonymized data to demonstrate what the future of energy trading on a blockchain might look like throughout Europe.  For more information and links to the press release, see the Nasdaq link here: http://www.nasdaq.com/article/estonia-launched-green-energy-blockchain-project-cm904091

This is pretty exciting stuff, hopefully the project will be a success.  The project in this case relates to energy trading and allowing users to buy green energy for a discount to market prices via blockchain technology.  It is an early step into taking energy trading and green energy payments onto the blockchain, decentralizing the process and making it more libertarian.

Even if it has hiccups, it is a signal for the way things could look in the future.  For instance, one of the issues with the former Kyoto Protocol trading mechanism was that the ultimate number of carbon credits was uncertain and also the oversight over their production and issuance was inconsistent worldwide.  If one included the initially assigned Assigned Amount Units under the Kyoto Protocol, the market really didn't need many carbon credits to begin with, and this was made worse by the financial crisis of 2008-2009.  The market's solution was to largely ignore AAUs even though legally they could have supported the entire market needs by themselves and without anyone taking on any renewable energy projects.

Blockchain technology could play a role in fixing this problem for future regional or worldwide emission trading schemes.  A fixed number of tokens could be issued based on the scientific cap of emissions needed to be achieved to prevent negative climate change.  Eligible market participants could trade these units amongs themselves using blockchain technology without lengthy, costly, inefficient, or perhaps even corrupt government stakeholder interference.  Tokens could be differentiated by industry sector and/or subsector, and the cost for the tokens via token offerings to industry players could be set at an agreed level that would seek to capture the opportunity cost versus marginal cost of companies paying for cleanup at their sites themselves.  Then the tokens could freely trade among the eligible market participants, and participants could elect to submit one token as an offset for one ton of CO2 equivalent emissions from their sites each year.  Am I crazy or is this the sort of thing that could work well?

Thursday, January 11, 2018

Crack Down Gangnam Style!

Whether we are talking about prices, volatilities, regulations versus libertarianism, instant millionares or even dark criminal activities - topics surrounding cryptocurrencies are never boring.  Give it that, regardless of whether you're for or against it.

And right now South Korea seems to be against it.  Traditionally a large source of cryptocurrency demand and trading (Bitcoins in South Korea typically trade at a premium up to 30% compared to global prices, which led to certain international exchanges to drop that country's price data from their worldwide price averages), now South Korea seems to have taken an aggressive change of direction and started cracking down on local exchanges and speaks of banning cryptocurrency trading altogether.

For a good read on this big development, see Reuters https://www.reuters.com/article/uk-southkorea-bitcoin/south-korea-plans-to-ban-cryptocurrency-trading-rattles-market-idUSKBN1F002A

 Look, it's no secret that cryptocurrencies have grown sufficiently large now to threaten domestic tax agencies.  They can claim cryptocurrencies are being used for tax avoidance and people are not reporting their accounts.  Maybe in some cases this is true.  But in South Korea's case, there may also be a combination of fears of capital flight due to an escalating North Korea situation or perhaps fears of societal gambling addiction and all the misery that comes with it.  At a macro level, cryptocurrencies are somewhat of a threat to large powerful governments.  If there was a Crypto World Bank or Crypto IMF for example, owned by nobody but paid for by society, how would the world's balance of power look then.  It would be slightly different.  Would society contribute to pay for such institutions, when people are usually behavior biased to "free ride" instead of contributing to societal good even when they would be better off as a result (i.e., tragedy of the commons)... who can say at this point so it's pure conjecture.

Anyway this is a long way of saying South Korea is scared of cryptocurrencies for their own reasons, perhaps some related to a potential capital flight if the USA and North Korea have a real confrontation prior to 2020 and the capital flight that could result from that.  It is certainly the case that cryptocurrencies have skyrocketed in popularity in South Korea and trade at higher prices than internationally.  I guess those traders will now have to do their trading in Japan, where they seem to embrace cryptocurrency trading at this moment and look at it as a boost to their GDP.

Wednesday, January 10, 2018

Cryptocurrency Scams Exist - So Be Careful Out There And Beware Eh?

The cryptocurrency market is growing each day.  New participants are entering the market and new opportunities arise constantly - whether it is in the form of day trading coins, participating in ICOs, buying tokens in a coin trading fund, participating in coin lotteries, etc.

With this in mind, the number of tricks and scams on the market also grows.  Hackers, liars, frauds, thieves, fake ICO whitepapers, pump and dump ICO schemes, and so forth seem to pop up from time to time.  The idea is to steal or defraud you of your hard earned money or coins, and whisk everything away somewhere anonymously.  I have found an interesting news group (www.cryptocoin.news) that covers this topic relatively well from an industry perspective: https://cryptocoin.news/category/news/scams/

I would recommend folks to use this resource (among others they also are using) for daily updates on what is happening in the dark corners of cryptocurrencies, so you can stay informed about different tricks and current scamming trends.  There is enough risk already in the market from price and liquidity volatility, regulatory and market questions, etc.  You don't need some jerks adding to that by stealing your property or defrauding you.

Where there is large money there are large opportunities but this likewise attracts criminals and the criminally minded types.  Be knowledgeable and be safe out there, cheers.

Tuesday, January 9, 2018

USA offshore oil and gas territories are 98% open for business across the board... but who is taking it up?

The United States proposes to open 98% of its Outer Continental Shelf to oil and gas leasing .  While this seems like an astronomical development with profound price implications worldwide... early analyst response "seems" to indicate that many industry players may be slow to respond in any case.

For full information, including analysis by Wood Mackenzie, see the link here:

https://www.epmag.com/analysts-expect-slow-oil-gas-industry-response-mega-us-lease-sale-proposal-1677321

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