Mining the coin club: Inside the cryptocurrency gold rush

10 Apr 2018

Bitcoin miner. Image: Lukasz Stefanski/Shutterstock

John Kennedy talks to some of the proponents of cryptocurrency to find out if the technology evolution is a fad or the start of something bigger.

Every day, I get emails or see tweets about a new initial coin offering (ICO) or hear about a new high or low for bitcoin or Ethereum. These ICOs, effectively fundraising by creating a new digital currency based on blockchain, are occurring with breathtaking speed, and in the past year have overtaken venture capital as a fundraising mechanism.

The rise of ICOs has the worlds of finance and technology split. It is an irresistible proof of technology but also potentially the Dutch tulip auctions or Ponzi schemes of our times.

‘Cryptocurrencies are here to stay. They will replace money and finance as we know it, and they will act as the backbone of the new economy’

In recent weeks, we reported how Facebook, Google and Twitter have all begun the process of banning advertising for ICOs or crypto-wallet services on their respective platforms.

Not only that, but a recent Symantec report pointed to the rise of cryptojacking and bitcoin mining by hackers who are stealing vital computer resources – perhaps even the computer you are reading this on – to mine for crypto gold.

There is also a diversity problem in cryptocurrencies. In a recent interview with Claire Lee from Silicon Valley Bank, she told us that as little as 6pc of cryptocurrency investors are women.

Regulatory bodies such as the US Securities and Exchange Commission (SEC) have also weighed in on the matter, with SEC chair Jay Clayton pointing out that not all ICOs are fraudulent and that the SEC plans to combat fraud in order to help the cryptocurrency industry develop.

China recently instigated a crackdown on virtual currencies, beginning with the ceasing of all ICOs. This followed hot on the heels of similar moves by financial authorities in Singapore and South Korea.

Despite the fluctuations of cryptocurrencies in the past year – which saw bitcoin surge to more than $20,000 in value per coin, and the rising spate of ICOs leading to $5.6bn raised in 2017 – there is a growing sense of cynicism around the cryptocurrency craze.

But that cynicism doesn’t appear to extend to the still ardent and passionate pursuit of ICOs by some of the cryptocurrency trend’s most avowed supporters.

So, rather than preaching doom and gloom about cryptocurrency as usual, I thought we would try a different tack insofar as whatever happens with cryptocurrencies, a new funding beast has nevertheless been born out of computing power.

What is the future for cryptocurrency?

Mining the coin club: Views from the cryptocurrency gold rush

Antonio Senatore, head of digital strategy, Deloitte. Image: Deloitte

“Cryptocurrencies are here to stay,” explained Antonio Senatore, head of digital strategy at consulting giant Deloitte.

“They will replace money and finance as we know it, and they will act as the backbone of the new economy and will play an important role in shaping a fairer society, where access to capital and banking will be at a grasp for everybody. The current cryptocurrency craze is not surprising – bubbles have happened before, like the dot-com bubble – yet internet is still here and has reshaped the world of communication and businesses.”

I point to the recent Symantec report and ask Senatore about his thoughts on the threats of cryptojacking and bitcoin mining that have followed in cryptocurrencies’ wake.

“The cryptojacking is not a security flaw of the cryptocurrencies or … of the blockchain technology that underpins it. The illicit mining is an attack to existing internet technologies, therefore they should be addressed within those technologies. For sure, it poses a new challenge to the security space, but the challenges will be always there. Every time a new technology has been developed, security concerns followed. Let’s remember what happened with emails, to make a parallel, and spamming and phishing.”

Senatore also welcomed the open-minded approach taken by the SEC. “As I already said, cryptocurrencies will be the backbone of the new shared economy, not only as a financial instrument but also as utilities and more. Yes, regulation can impose limits to its use and distributions but there’s still a lot that can be achieved beyond what can be regulated.”

ICOs are still only in their nascent stages in Ireland, with two locally based fintech firms, MingoCoin and Confideal, dipping their toes into the ICO pool.

In recent weeks, we also reported that Dublin-based Blocknubie had raised $5m in a private pre-sale from a diverse range of investors from the blockchain ecosystem around the world. The company is modelling itself as a go-to resource for blockchain start-ups.

The CEO of Blocknubie, Loughlin Nestor, told that he believes the current cryptocurrency craze represents a new chapter in the evolution of investment underpinned by technology.

“For me, it depends on your risk tolerance for investments, your understanding of what you are investing in and implementation of cryptocurrencies,” Nestor explained.

“There are a plethora of altcoins and ICOs to choose from but it is vital, from my perspective, that companies utilising tokenisation as a funding model need to implement very strong due diligence and good governance. Yet, like all investment of this type, they are speculative.

“Compared to fiat currencies, cryptocurrencies are far more volatile in the sense that they can fluctuate 10pc or more in a day, compared to fiat currencies with usual 0.1 to 0.5pc fluctuation parameters daily. Cryptocurrencies as a whole are still in their infant stages of being implemented in our daily lives. We can now buy coffee in Dublin and Guinness in Cork using cryptocurrency. As a form of payment, this new model has only started. I do expect cryptocurrencies markets to recover eventually but, at this point in time, it is almost impossible to say how and when this will happen.

“If people are planning to invest in blockchain assets, the coming weeks and months could offer superb entry points. However, be mindful of technological risk as well as scammers in the ICO markets. Furthermore, only invest money you can afford to lose. That’s effectively the mantra for investing and it should be applied to the cryptocurrencies markets,” Nestor sagely advised.

Equally, he also pointed out that even as a supporter of cryptocurrencies, the security risks are impossible to ignore.

“Cryptocurrencies augmented to nearly 8,000pc growth last year. I think there is an urgent and vital need for process security and cybersecurity implementation protocols, which will require joined-up thinking from all the large corporates. Google is no longer accepting extensions from its Chrome Web Store that mine cryptocurrency, as it works at protecting users from extension cryptojacking. It’s estimated that approximately 90pc of all extensions with mining scripts that developers have attempted to upload to Chrome Web Store have failed to comply with their policies. In recent months, the threat of cryptocurrency-mining malware has been felt globally.”

After the cryptocurrency craze dies down

Mining the coin club: Views from the cryptocurrency gold rush

Muayyad Shehadeh, founder of the UHive social network and CEO of Zoolz Intelligent Cloud. Image: UHive

So, what’s going to happen to cryptocurrencies once the craze dies down (or, indeed, if it dies down)?

Muayyad Shehadeh is the founder of the UHive social network and CEO of Zoolz Intelligent Cloud. He pointed out that there are thousands of cryptocurrencies in the world right now. “I believe only 2pc will remain in the next two to three years. Crypto and blockchain – it’s the future, it will take time. The top ones will remain, like bitcoin and Ethereum and some others that managed to find an actual usage in the real world, plus 5pc of the ICOs that have a solid idea and a real example of using their cryptocurrencies in the real world.

“And it will end badly for many people, for sure. But others will profit – like Ponzi schemes, 12pc will profit but 88pc will lose.”

Mining the coin club: Views from the cryptocurrency gold rush

Vasilii Silin, co-founder and CEO of Tokpie. Image: Tokpie

For Vasilii Silin, co-founder and CEO of Tokpie – a peer-to-peer cryptocurrency-fiat swap exchange – there will be casualties but, in the long term, a new technology has been born that will play a role in our lives for potentially generations.

“What we saw during 2017 was a standard bubble supported by craziness. The same situation was in 2000 with the dot-com boom. So, looking in the past, I am sure that after the crypto-bubble deflation, the uptrend will come back and will be lasting longer and louder.

“Concerning people and their shirts, the percentage of people that are engaged is still small so, even if they buy – remember when bitcoin hit $20,000 in value? – it will not stop other millions of newcomers buying it for $4,000 to $7,000 with the hope of making a profit. Moreover, I am sure that the number of people losing money in casinos and forex brokers’ platforms, offering 200-times leverage, is much higher than the percentage of losses in the crypto market.”

Silin doesn’t believe that regulation will hold back the process of global economy tokenisation. “The question is: how long can regulation authorities in some countries slow down this process? Some smart countries instead try to help the crypto industry with hopes of benefiting from it.”

He ultimately believes cryptocurrency principles will spark the imagination of technologists long into the future. “I will not be surprised if in the year 2028, every person when born will be getting (by default) their own blockchain cryptocurrency held on an implanted microchip with a wireless connection to gadgets.”

We should check back with Silin in 2028 to see how he’s getting on with his own crypto implant.

Another chapter in the story of computing?

Mining the coin club: Views from the cryptocurrency gold rush

Peter Alfred-Adekeye, CEO of Multiven. Image: Multiven

For Moritz Kurtz, CEO and co-founder of Acorn Collective – a company that is about to embark on its own ICO shortly and which plans to promote social enterprise by making crowdfunding free – something tangible has been born.

“I don’t think it will all end badly. We’ve seen the hype waves and there may well be a bubble, but the underlying technology is solid, and the strong companies and strong currencies will survive and prosper.

“I see it as analogous to the dot-com bubble, which does mean lots of people may lose money if not careful.

“On the other hand, the total market cap of all cryptocurrencies is still so small in relative terms that I don’t see there being huge systemic upsets even if the bubble were to burst,” Kurtz said.

Multiven CEO Peter Alfred-Adekeye pointed out: “What we are experiencing is no different from the entrepreneurial excitement of the late ’90s in the early days of e-commerce.

“What you see now is the birth of blockchain commerce, or b-commerce. As always, there will be a correction, and the most innovative projects, led by the most passionate entrepreneurs, will prevail.”

Multiven is a blockchain-based marketplace aimed at the global $3trn IT products and services industry, and has just commenced its own ICO.

Crucially, Alfred-Adekeye believes cryptocurrency is just one application of a myriad that may come from blockchain.

“There are limitless use cases for blockchain technology that go beyond tokens, as evidenced by the hundreds of innovative projects that are currently been created. For example, the Multiven Open Marketplace will create the world’s first immutable proof-of-ownership record for all IT products, ranging from computers to internet-enabled cars. I foresee a future where all our passports, drivers’ licences and IDs will reside on the blockchain and we’ll simply unlock access to it at borders virtually.”

Back to blockchain basics

Senatore from Deloitte agrees: blockchain is the real diamond in the coal.

“The technology will deliver beyond what we now think is even possible. We are all focusing on improving current processes and making the status quo better. We are still not thinking of how to leverage the technology to create new business models, the change in society, and how individuals and organisations react … We haven’t seen yet what blockchain can do.”

But, back to cryptocurrencies, will the bubble burst? According to Abid Rahman Kodakkadan of Paris-based BiteCoin Network, the bubble has already burst several times over.

“Time and again, we have heard about the possible ‘bubble’ the cryptocurrency industry is all about. However, with the recent milestones last year, I believe that era has passed and it is time to move on. Yes, indeed, there are implications to the cryptocurrency industry rising over the horizon with such a pace and a steep interest, but that does in no way indicate a problem with the technology or even an existential threat.

“If the craze, partially fuelled by interest in making money quickly, is referred as to a threat or bubble, then, as many people have pointed out in countless articles, it has already burst several times over the past few years. On the other hand, it should be understood as the next natural technological development process in this era. It’s been frowned upon by the traditional financial establishment mainly because of its nature of disruption and their fear of losing the monopoly over the economic infrastructure of a society.

“However, to us – people on the blockchain – it is analogous to farmers fearing they would be out of jobs when the tractor was invented. So, my honest suggestion to the conventional players is to embrace the technology and adapt, rather than freaking out and creating panic and trying to stall the innovative growth.”

Bitcoin miner. Image: Lukasz Stefanski/Shutterstock

John Kennedy is a journalist who served as editor of Silicon Republic for 17 years