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Facebook’s GlobalCoin May Be A ‘Historic Initiative,’ Say RBC Analysts

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Facebook’s “crypto opportunity” comes with high expectations.

“We believe this may prove to be one of the most important initiatives in the history of the company to unlock new engagement and revenue streams,” RBC Capital Markets’ Mark Mahaney and Zachary Schwartzman said in a note on Thursday.

The two experts expect the currency to be used for payments, commerce, applications and gaming — across Facebook’s ecosystem that includes image-based social media platform Instagram and encrypted messaging service WhatsApp.

Mahaney and Schwartzman also repeated previously reported expectations that Facebook will release their currency’s white paper on June 18, following in Satoshi’s footsteps to explain the fundamental protocols that will underpin Libra, the internal codename for the project.

RBC said it plans to offer an analysis of the paper when it’s released, “to help investors analyze the underlying cryptoeconomics of the token.”

The currency is rumored to be a stablecoin backed by a number of global fiat currencies.

It has been in development for more than six months — though the company indicated it has contemplated enveloping cryptocurrency into the social network as far back as the end of 2017 — and has 100 staff working on its development. This includes two former compliance managers that migrated from Coinbase in May.

Facebook allegedly will offer employees the option to take their salary in the new currency. It has not been confirmed if the $514 billion company will offer incentive packages in GlobalCoin. 

“More people will turn to bitcoin for one simple reason—bitcoin is scarce, while Facebook’s cryptocurrency is not. People will migrate over time to the most honest ledger for storing their hard-earned wealth—and that’s not fiat currencies or derivatives thereof, including Facebook’s cryptocurrency,” wrote Caitlin Long of the Wyoming Blockchain Task Force.

Now everyone is as excited about the product. Crypto-notable Charlie Shrem said:

I’m just gonna say it.

I think the “FacebookCoin” is an attempt by big tech, banks and credit card companies to lure people away from Bitcoin into  “better, easier, crypto”, which is nothing more than a fiat coin being masqueraded as crypto.

Millions will be fooled.

A lobbyist from Standard Chartered will join the Facebook crypto-unit staff in September, possibly to assist with political and regulatory scrutiny in the EU. Facebook emissaries have reportedly been having lunch with the Governor of the Bank of England to see how the project may progress in the country amid Brexit.

Visa, Mastercard, PayPal and Uber are all backing GlobalCoin to the tune of $10 million dollars. This is in addition to the $1 billion in VC funding Nathanial Popper of the New York Times has reported that Facebook is seeking, either as an investment or for collateral.  

For as much as Facebook has raised, the company has also acquired smart contracts producer, Chainspace, to assist development.

RBC has an outperform rating on Facebook with a price target of $250 a share. Facebook’s stock is up more than 35% this year as of Thursday’s close of $177.47 a share.

Image via Shutterstock.

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CFTC Lawsuit Alleges $147 Million in Bitcoin Defrauded from Trading Scheme Investors

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The Commodity Futures Trading Commission (CFTC) announced the filing of a civil enforcement action against Control-Finance Limited, a purported Bitcoin trading and investment company, and its founder, Benjamin Reynolds, of the United Kingdom.

The complaint charges the defendants misappropriated at least 22,858.822 bitcoin—worth at least $147 million at the time—from more than 1,000 customers through a pyramid scheme called the Control-Finance “Affiliate Program.”

According to the documents, from May 1 through October 31, 2017, Reynolds exploited public enthusiasm for Bitcoin by fraudulently soliciting customers to purchase and transfer bitcoin to Control-Finance. He alleged his expert virtual currency traders earned up to 45% trading returns per month, and used risk diversification methods to create a “safe haven” from crypto market risks and protect customers’ Bitcoin deposits.

“In reality, the defendants made no trades on customers’ behalf, earned no trading profits for them, and misappropriated their Bitcoin deposits,” write the CFTC in a statement.

Reynolds also enticed his clients to invite family and friends to the platform through promises of “affiliate” bonuses.

The misappropriation scheme relied on creating unique single-use wallet addresses to receive customers’ Bitcoin deposits, which would then be routed to other, pooled wallet addresses held by virtual currency payment processors and exchanges in North America, Europe, and Asia. CFTC authorities allege these uneconomical and confusing blockchain transactions were executed solely to conceal misappropriation.

Additionally, when customers requested account withdrawals, Reynolds would illegally divert funds from other customer’s to make the payments.

Reynold’s concealed the fraud by providing customers with sham account balances and profit figures that falsely reflected trading profits that did not exist. Weekly “Trade Reports,” which identified illusory profitable trades were also fabricated.

In its continuing litigation, the CFTC seeks civil monetary penalties, restitution, rescission, disgorgement of ill-gotten gains, trading and registration bans, and permanent injunctions against further violations of the federal commodity laws, as charged.

The complaint was lodged in the U.S. District Court for the Southern District of New York.

Pyramid photo via ShutterStock

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Researchers Discover How To Automate Accountability On The Blockchain

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“The (virtual) gold rush is on, and as in the Wild West of yore, the outlaws are ever present,” wrote blockchain developers and academics in a recent paper, Polygraph: Accountable Byzantine Agreement. Luckily, these researchers have have discovered a way to detect and punish dishonest blockchain users.

The authors — Vincent Gramoli and Pierre Civit of the University of Sydney, and Seth Gilbert of the National University of Singapore — developed the Polygraph protocol, which automates accountability in blockchains to hold participants accountable for double spending, a notoriously knotty issue in cryptography.

Though the double spend problem was supposedly solved by Satoshi’s white paper, published in 2008, the researchers discovered that disagreements caused by blockchain forks can lead to double spending if the resulting branches have conflicting transactions.

They cite a zombie case:

“Byzantine nodes can override the General Polygraph Protocol by proposing directly two conflicting views to two different clients to then perform a double-spending attack. The coalition does not participate to the consensus in order to violate the liveness property…. Note that safety is also violated: When a client invokes the read() primitive, the coalition can answer arbitrary values, despite the non-termination of the legitimate consensus. The client is supposed to trust the coalition, like all the other clients who can forever receive a different output for the read() primitive. Hence, for t ≥ n − t0, the eventual prefix property is violated. This makes the blockchain vulnerable to a double-spending attack.”

Yes, the paper is scholarly, but it also provides pragmatic solutions to real problems in current consensus mechanisms.

The group considers the growing threat of centralization on blockchains, caused by the collectivizing of hashing power. Under traditional Byzantine protocol agreements, if one party amasses more than one-third of total mining output they gain decision making authority. As an aside, the authors note that the largest Bitcoin mining pool today controls approximately 19 percent of total hashing power.

“We need a new sheriff in town to bring the guilty parties to justice. What if, instead of preventing bad behavior by a party that controls too much of the network power, we guarantee accountability,” write the authors.

Much in the way we prevent crime in the real world, we can prevent bad blockchain behavior via “defense-in-depth” — the basic Byzantine agreement protocol that prevents usurpation if the attacker has less than one-third of network control or if the network infrastructure is working to pass messages in time.

“Byzantine agreement protocols act as the locks on the bank doors, preventing the gangs from making off with the loot,” they wrote.

However, when these guarantees fail — and the authors suggest they can and do — the Polygraph protocol will intercept malicious behavior.

The Polygraph’s basic algorithm is based on the Byzantine agreement protocol, but goes further in that proceeds through asynchronous rounds, or a vote that receives democratic imput.

“First, a reliable broadcaster is used to distribute the proposal values. Then, a second phase of communication is used to determine whether enough processes have converged on a single value. Finally the processes decide, if they can; and if not, they update their estimate in an attempt to converge on a single value.”

This Town Isn’t Big Enough

If the process determines that someone is pursuing illegal actions, the consensus can vote them off the network.

“Accountability has been overlooked in blockchains but it is actually key to security,” said Gramoli, who also serves as Red Belly Blockchain CEO. “The industry cannot accept blockchain to be a simple distributed system where valuable assets vanish as soon as a third of the participants form a coalition.”

Red Belly Blockchain has been funded by the Australian Research Council and developed by researchers of the Concurrent Systems Research Group at the University of Sydney and Data61-CSIRO.

Photo by Xiang Gao on Unsplash

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A New Bitcoin Exchange Point On the Colombian-Venezuelan Border Will Help Refugees

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A new cryptocurrency exchange service is available on the border between Colombia and Venezuela and its aim is to help refugees traveling across the Simon Bolivar International Bridge.

Visitors are now able to use the point-of-sale service with cryptocurrencies to buy goods. The POS is located in Santander, Colombia, just across the border from Venezuela. Panda Group created the payment alternative with refugees in mind. The group, a Columbian-Venezuela joint venture, announced the implementation of the new service through their Twitter account.

According to the data published by Coinatmradar.com, the service lets users exchange using bitcoin (BTC), bitcoin cash (BCH) and dai (DAI), and converts them into to Colombian Pesos (COP).

At the physical location – a small phone service provider in a mall called La Parada – customers can buy bitcoin with prices based on the Localbitcoins rate in pesos. The service will charge 10 percent above the market price and those who sell their bitcoins will do so for 5 percent more than the established market value.

This is not the first cryptocurrency service in the country. The Panda Group has already installed another five cryptocurrency exchanges in Colombia, most of them in the Colombian capital, Bogotá.

According to Panda CEO, Arley Lozano Jaramillo, their solutions are focused on helping the Venezuelan users and they announced the addition of a new service called Xpay.Cash to encourage adoption.

“This service is for all our brothers to pay directly in Cucuta with their cryptoassets and mitigate the loss of exchanging from BTC to COP, which represents a loss of at least 20%,” Jaramillo said.

Colombia has the highest rate of cryptocurrency investors in South America, next to Brazil. There are reportedly over 20 businesses accepting bitcoin payments in the country. The establishments are mainly focused in tourism, food and digital services.

Bitcoin At The Border

The ATM installed in Villa del Rosario City is connected to the Venezuelan border by the state of Tachira. The states are only separated by the Simon Bolivar International Bridge, one of the most heavily traveled borders used by Venezuelan refugees.

The refugee situation has also sparked a focus on the cryptocurrency, mainly for humanitarian aid purposes.

On the other hand, the last point of sale with cryptocurrency was implemented in Cúcuta, another border location with an growing Venezuelan population. The state also has a Bitcoin ATM, one of forty-two in the country.

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