So, is it the ground-breaking innovation of our time? Or actually a trillion-dollar scam?
Some – the so-called “evangelists”– think the decentralized technology that has brought us blockchain, bitcoin and more than 1,000 other crypto-currencies, is going to transform our world. Others (including numerous heavyweight economists, financial regulators and traditional blue-chip banks), though curious about the merits of blockchain, are increasingly of the view that virtual currencies amount to nothing more than classic Ponzi/fraud schemes.
Right now, it’s hard to say precisely where the truth lies, or what the technology might mean for our future. But whatever the reality, it’s hard to deny that – if for no other reason than that it is spawning a multitude of incredible stories, on a near-daily basis – what we’re dealing with here is a remarkable new sector. And this is why Asia Times will start, from today, to publish a daily column – The Chain – that will collate, describe and examine the most important developments coming from this strange and absorbing new space.
It is also a rapidly changing space and right now it’s one that appears to sit at a defining crossroads. More and more mainstream multinationals are utilizing blockchain-based technology in their business processes. Simultaneously, at the other end of the spectrum, more authorities around the world are seeking to clamp down on crypto-currencies.
China is currently full of rumors that Beijing is about to start another regulatory blitz on crypto-currencies. In December, China’s financial regulators banned domestic crypto exchanges and Initial Coin Offerings (ICOs), and the whispers now are that Beijing will soon start to examine the bank accounts of individuals and companies who trade crypto-currencies on overseas exchanges, while also moving to outlaw bitcoin mining.
China hosts some of the biggest of these supercomputer-driven “mining pools” – and bitcoin mining is estimated to use up to four gigawatts of electricity per year in China, roughly the same production output as three nuclear reactors. But Beijing’s latest moves are as much about financial control as they are about concerns over power use. And China is far from alone here.
Despite the bad press, the stern warnings from heavyweights like Warren Buffet and Bill Gates, and the ever-tightening regulation, the crypto market continues to make leaps and bounds
Last week, news emerged that the US Securities and Exchange Commission has served a raft of subpoenas and information requests to people behind dozens of ICOs. Also last week, in India, two major crypto exchanges announced they are stopping trading activities because of regulatory “stress” on their business. This came after Indian finance minister Arun Jaitley used his January budget speech to dismiss all crypto-currencies as Ponzi schemes, saying his government will do everything it can to stop the use of bitcoin and other virtual currencies.
Japan has just announced measures to regulate the industry and a few days ago the EU said it is working on its own regulation plans. On Friday, the Bank of England also called for regulation, with bank governor Mark Carney saying: “At present, crypto-assets raise a host of issues around consumer and investor protection, market integrity, money laundering, terrorism financing, tax evasion, and the circumvention of capital controls and international sanctions.”
“The prices of many crypto-currencies,” continued Carney, “have exhibited the classic hallmarks of bubbles including new paradigm justifications, broadening retail enthusiasm and extrapolative price expectations reliant in part on finding the greater fool.”
Yet, despite the bad press, the stern warnings from heavyweights like Warren Buffet and Bill Gates, and the ever-tightening regulation, the crypto market continues to make leaps and bounds. Take the up-coming ICO for Russian messaging app Telegram. It looks set to be the biggest ICO ever, with some estimating the sale could raise US$5 billion, despite the fact that Telegram’s service is given out for free, meaning its revenue is basically zero.
Or, take the intriguing case of Tether and its USDT tokens, which are supposedly “tethered” to the US dollar. There are currently 2.2 billion Tethers in circulation and the company says these tokens are supported by dollar-for-token US$2.2 billion cash reserves, but it has been unable to produce any audit to verify this. In mainstream business, this would surely cause a fatal crisis of confidence crisis. Not so for Tether. It received a subpoena from the US Commodities and Futures Trading Commission in December but circulation of Tether’s token has since surged and daily volume trades for Tether often exceed US$2 billion.
What’s going on? We don’t exactly know, but at least we can trust in The Chain to help us find out.