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Satoshi&Co Daily Crypto Newsletter

April 12 · Issue #11 · View online
ZPX | Satoshi&Co Newsletters

Abundance is harder for us to handle than scarcity.” - Nassem Taleb
Last week, even as we were all attending De/centralize 2018 (more on this later), busy marvelling at the nuanced, evolved view of regulation in Singapore, under the able stewardship of Ravi Menon, things were stirring in the corridors of the Reserve Bank of India (RBI), in Mumbai. In the monetary policy committee meeting on 5th April, the RBI decided upon two things.
1. Ban regulated entities (pretty much all banks and payment providers)      from dealing with cryptocurrencies. This notably affects all Indian crypto exchanges, knocking off the on-ramps in one fell swoop. Exchanges are scrambling for survival, and looking at options ranging from relocating to external jurisdictions like Singapore to moving banking to the State Bank of Sikkim, which, curiously enough, is not under the ambit of the RBI.
2. Constitute an interdepartmental group to guide whether the RBI can issue a CBDC (A central bank digital currency).
Seriously, RBI? Basically, you want to stop all other cryptos, and issue your own crypto. Maybe if RBI and their political overlords and peers from other central banks had not mucked up policy so badly, central banks might not be facing obsolescence today. As this article points out, central banking ineptitude is directly responsible for the development of bitcoin, blockchain and all things crypto as we know them today. (Incidentally, the first bitcoin transaction by Satoshi Nakomoto referred to banks opening up the spigot).
In one fell swoop, the innovation ecosystem has been affected. Public blockchains and cryptocurrencies are an exciting field bringing together multiple disciplines - programming, cryptography, economics, legal theory etc. The fledgeling developer ecosystem in India needs all the support that it can get, and such knee-jerk regulatory moves are definitely not helping.
The top 2%, the UHNIs, they will still figure out a way to trade. Ostensibly the reasoning goes that RBI does not want regulated entities to be affected by price volatility of cryptocurrencies. Cryptocurrencies are not even a speck on the global forex markets, and even in India, it is only around 5 mn people that actually have exposure to any sort of cryptocurrency, from a population of around 1.3b. The systemic risk that the RBI is citing is clearly not the one that it is actually thinking of, which is the existential risk that cryptos pose to all traditional fiat regimes. The other reason that is touted is the case for misuse of cryptocurrencies in illegal activities. A US Treasury official helpfully cleared up that misconception.
Frankly, we smell flailing-in-the-dark desperation.
Also, expect a wave of suits by industry bodies. Banking is a fundamental right as per the Indian constitution, and the move to take away banking access without even first deciding if crypto is legal or illegal, as a government committee is trying to decide, probably is unlikely to hold up in court.
As we discussed in an earlier post, the fragmentation of consensus reality frameworks could also be along political and ideological lines. Governments and allied regulatory regimes will try to control, influence and drive the definition and emergence of new distributed consensus frameworks wherever they can do so. It was, therefore, no surprise to see the RBI announce plans to launch its own crypto, following in the footsteps of illustrious efforts in this direction by the likes of Venezuela, Ecuador, etc.  
Oh, by the way, they did not forget to mention that other hoary old chestnut - “Blockchain good, bitcoin bad”. One of a piece with the earlier pronouncements from the Indian finance minister some time ago.
While the Indian authorities were busy burrowing their heads further into the summer sands banning cryptos, China just kicked off a billion dollar blockchain fund, and the Rockefellers and George Soros and the Rothschilds, those almighty exemplars of the current economic paradigm, just went ahead and decided they would get into this whole ‘crypto’ business.
Interestingly, Joseph Poon had this to share on how to develop blockchain ecosystems. He suggested focusing on three things - hacker houses, apprenticeships under ‘Crypto-Jedi’ developers, of which he reckons there are around 30 across the world and academic support of the type that has worked at places like MIT.
Meltem Demirors of Athena Capital wrote this very interesting article about overtokenization. She touched upon this theme at the conference as well. This graphic from her presentation at De/Centralize pretty much captures the economics of the token market currently.
Courtesy: Meltem Demirors, Founder of Athena Capital
Courtesy: Meltem Demirors, Founder of Athena Capital
The recent selloff could be a tax-related slump. This provides interesting reading, but we are still concerned about diminishing transaction numbers. All the major cryptos seem to be bouncing off a ceiling. Is medium-of-exchange a more ‘anti-fragile’ use case than the store of value?
Source: Zenprivex
Source: Zenprivex
This article nicely captures the challenges inherent in valuing a nascent field like crypto. Simply put, force-fit the MV=PQ narrative from traditional macroeconomics at your own risk.
Chris Burniske does a great job of linking the tax-related Bitcoin selling with reflexivity in the markets. There is an interesting concept of a ‘fiat amplifier’, which is the ratio of the loss in network value to the estimated tax outflow attributable to crypto.
Also, Basecoin presale - Intangible Labs, a Princeton-born cryptocurrency startup headquartered in Austin and owns a stablecoin called Basecoin, raised $125 million from 225 investors according to SEC filings. The whole emerging class of ‘stablecoins’ will be interesting to watch and they have polarised opinion in the crypto community recently. The bull case here is the ability to completely displace traditional Fiat currencies.  
Coinbase acquiring crypto startup - Leading US cryptocurrency exchange Coinbase is rumoured to be in talks to acquire, formerly known as (Full Disclosure: Some ZPX principals might have holdings in
US adopting bitcoin ETFs - The SEC is currently reviewing applications filed by Pro Share Capital Management, a firm that specializes in ETF products, for two Bitcoin ETF products to be listed on NYSE Arca exchange. 
Also, ZPX was quoted in this article in Reuters about diminishing crypto arbitrage opportunities.
It has been an eventful couple of weeks. First off, we had the pleasure of hosting the inimitable Zooko Wilcox in Bangalore, and Hyderabad and Chennai, at a bunch of developer and policy-makers focused events. 
Zooko with Gautam Seshadri of ZPX at a fireside chat hosted by Accel Partners
Zooko with Gautam Seshadri of ZPX at a fireside chat hosted by Accel Partners
Last week, ZPX, along with our partners XSQ and Blocks, co-hosted the inaugural edition of De/Centralize 2018- Singapore’s premier blockchain conference, at the Marina Bay Sands. The conference, we hope, ‘examined the thematic interplay of centralization and decentralization in technology, economics and law.’ In plain English, it was fun, thought-provoking and informative, and there was a great crowd. Specifically, folks like Tim Draper, Meltem Demirors, Eyal Hertzog (Bancor), Joseph Poon, Niraj Mehta, Jehan Chu (Kenetic), Larry Salibra (Blockstack), and quite a few others lit up the stage (and the corridors and the coffee table conversations) with their frank, forthright, no-BS views. We summarize our key findings and takeaways from the conference below.
Source: De/Centralize. Ramani Ramachandran, Joseph Poon, Lasse Clausen, Meltem Demirors, Larry Salibra and Niraj Mehta (from left to right) at the closing panel of De/Centralize 2018
Source: De/Centralize. Ramani Ramachandran, Joseph Poon, Lasse Clausen, Meltem Demirors, Larry Salibra and Niraj Mehta (from left to right) at the closing panel of De/Centralize 2018
Thin Protocols vs Fat Protocols: The striking difference between yesterday’s internet and today’s blockchain technology is the way value capture happens and how the value is distributed between the protocol and application layers. Investment in the application layer yielded higher returns than at the protocol level, leading to a low level of innovation at the protocol level and thus a thin protocol layer for the internet value stack. The situation has been inverted through the emergence of blockchain technology wherein the protocol layer now captures the majority of value created. The introduction of a cryptographic token incentivizes stakeholders/token owners to foster innovation at the protocol level and benefit from the resulting price appreciation of the token.
True decentralization remains a myth, as we can see from the clustering of nodes, token ownership, and protocol development. Also, there were some interesting ideas proposed around ‘protocol M&A’, which we will revisit at length in a later post. In the words of the reclusive Niraj Mehta of Kilowatt Capital, ‘treat other blockchains as you would treat your own’. This might be especially important in these early 'cambrian soup’ days we are in, with competing blockchain protocol development efforts, where the potential to create value by collaborating often outstrips that from destructive competition.  
Courtesy: Meltem Demirors, Founder of Athena Capital
Courtesy: Meltem Demirors, Founder of Athena Capital
Wave of Tokenization Looming Tall: There is a huge impending wave of tokenization about to flood us over the next few years. There are projects currently underway to tokenize everything from real estate to loyalty reward points. This proliferation of micro token economies will become unsustainable as these projects struggle to manage the lifecycle of their assets once they become live and tradable in free markets. In addition, the need for network effects to be successful in the long run will wipe out most of the incumbent and upcoming ICO projects that fail to scale up.
Regulatory Outlook Still Remains a Wildcard: Regulatory acceptance for long has been a bugbear for crypto investors due to the varying nature of patchwork regulation that is emerging across the globe. For example, while Japan, Singapore etc are making positive strides towards legalizing and regulating cryptocurrencies, the Indian central bank did its thing last week. Although global crypto markets seemed to have shrugged off this news due to the relatively small size of the Indian cryptocurrency trading market, INR prices of cryptocurrencies witnessed a sharp drop before recovering somewhat. This is essentially an oblique ban on cryptocurrency investing in India as most Indian exchanges will be forced to shut down domestic operations or move to different jurisdictions where the laws are more relaxed. Current regulations in most important jurisdictions mandate that fiat-to-crypto related activities be subject to local regulations, while crypto-to-crypto services are less regulated, perhaps, even unregulated in some jurisdictions. However, there is an increasingly growing concern that regulators might want to regulate and tax crypto-to-crypto activities as well.
All eyes on the fluffy pony! Drop in Hashrate for once was for good. Oh, wait!
80% of Monero’s hashpower vanished immediately after a hard work was performed last week that made ASIC mining almost impossible. While the hashpower recovered somewhat from the lowest level just after the hard fork, the current hashpower is only a fraction of what it was before. This drop in hashpower makes the network less secure and transferring $1 million dollars in Monero might be dicey now. The decision to fork the PoW framework came after Bitmain publicly announced the launch of new ASIC devices that can mine XMR. ASIC miners are known to centralise cryptocurrency mining into the hands of a few guys, as other devices (GPU and CPU powered) cannot compete with the computing power of ASICs. This has been a concern for Bitcoin for a long time and was often used as a weapon by Bitcoin sceptics. Momentary fall in hashrates after hard forks are common as miners have to upgrade their software in order to start mining again. However, the fall in hashpower in excess of 80% surprised the community and raised questions about the possibility of ASICs and botnets already mining XMR privately. Monero’s hash power increased substantially by over 3x since the beginning of December last year, and industry experts feel that this increase was largely driven by ASICs and Botnets, whose computing power contribution would have dropped to zero post the hard fork. On the other hand, some sections of miners and developers feel that frequent hard forks will disrupt the trustlessness aspect of cryptocurrencies and vowed to continue mining on the old chain before the fork, leading to the creation of a new offshoot called Monero Classic. It will be interesting to see whether the rest of the community swears allegiance to the forked version or remains loyal to the “Code is Law” tenet and continue mining on the old chain. As expected, we expect this whole fiasco to have a bearing on the XMR price in the short term.
Monero miners now!
We are also happy to formally announce a round of funding from Seedplus, one of Singapore’s pre-eminent early stage investors. Excited to have Mike, David and Tiang on-board guiding us in building out the ZPX platform. 
Also, btw, we are also launching a tradable crypto index. Stay tuned, for more details please visit And sign up for the telegram channel.
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