Crypto Market Commentary
26 March 2019
Doc's Daily Commentary
Doc’s Next Trade School will be on 3/29/2019
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The Age Of Digital Money
The world is at a tipping point.
For those observing the crisis in Venezuela, it can feel like tragedy in slow motion. The country is in the grips of the most extreme monetary crisis of our time–with inflation recently reaching 1,000,000%--and since 2013 has seen an economic contraction worse than the Great Depression. Once one of the richest countries in South America, the economy is in ruins, livelihoods are shattered, and starvation and violence are rampant. The past weeks have seen state-backed military attacks against its own citizens queued up for humanitarian aid and blackouts across the country.
So what does any of this have to do with digital money?
As we’ll discuss, quite a bit. Facing a fiat currency devoid of worth, some Venezuelans are turning to decentralized cryptocurrency, specifically Bitcoin, as a stable store of value and means of exchange. At the same time, in February 2018, Venezuela’s government introduced its own digital currency, the Petro, which is centrally controlled by the state and enables the government to directly track its citizens’ financial activity.
An ideological contest is playing out around digital money in Venezuela: On one hand, it is being used as a means of surveillance and autocratic control–on the other, as a tool to shield people from economic oppression and undemocratic abuses. The tension in Venezuela is emblematic of a larger struggle emerging around the world, as the transition begins from physical cash to completely digital means of transaction. Will the shift to digital money expand our economic freedom–our ability to transact with whomever we choose with our chosen means? Or will it do the opposite, becoming a catalyst of control?
CRYPTOCURRENCY AS A MEANS OF OPPRESSION
If you want an example of using cryptocurrency against people, there is no better example than the Petro. That said, it is not a cryptocurrency–in fact, it represents its polar opposite. The digital currency is centrally controlled, its value opaque, and its circulation arbitrary. With an autocratic government intent to trace every transaction made with the currency, this has translated into an even deeper erosion of economic agency for citizens.
There’s also interest by governments who are more in control of their situation. China is quietly exploring the introduction of its own digital currency. Again, in contrast to cryptocurrencies like Bitcoin, this one would deepen Beijing’s control over the financial system, and the lives of its people.
What we’ve learned of is the existence of patents filed by the China’s central bank, which details how consumers and businesses would use mobile phone wallets to swap Yuan for the new digital Chinacoin (real name not known). Any transaction made with the currency would require disclosure of what and who is involved, enabling the Chinese government to track every single transaction its citizens make.
As we’ve previously discussed, China’s new Social Credit system–which tracks “antisocial” activities like jaywalking and the voicing of unsavory political opinions —- paints a dark picture of oppression and surveillance. Chinese citizens with low Social Credit Scores already face blocks to travel, use of public services, and access to education, loans, and even dating services. While the Chinese government already has deep visibility into its peoples’ financial activity, it must still contend with the use of cash, which is difficult to trace, while also scouring the data of various intermediaries and banks. If such a centrally controlled digital currency system were to succeed at scale in China, it would obviate these challenges to control. It may also comprise the largest and highest-resolution surveillance apparatus in human history.
CRYPTOCURRENCY AS A MEANS OF ECONOMIC FREEDOM
One of the best ways to measure a tool’s potential to grow people’s agency is to examine the actors trying to prohibit its use. The cast of governments that have worked to block access to bitcoin are unified by their undemocratic bent: Algeria, Egypt, Morocco, Bolivia, Ecuador, Saudi Arabia, Iran, Bangladesh, Pakistan, China, Taiwan, Cambodia, and Indonesia. This makes sense. Cryptocurrency by design subverts centralized control, and it poses nothing but trouble for a repressive regime.
Nevertheless, people living in countries with low economic freedom are using cryptocurrency at an increasing rate. A recent study by the data scientist Matt Ahlborg showed that the countries seeing fastest growth in localized Bitcoin transactions are marked by economic oppression, unstable fiat currencies, or both. Venezuela, Belarus, Kazakhstan, Egypt, Chile, and Argentina all top the list. And most of these transactions are small, indicating that users are everyday citizens, not the ruling elite using the currency to aid in capital flight.
As the crisis in Venezuela has deepened, local Bitcoin transactions in Venezuela and bordering countries have spiked faster than anywhere in the world. Many in the field see this as an indicator of Venezuelans at home moving to protect wealth pegged to a plummeting currency, as well as Venezuelans abroad sending resources into a home country that doesn’t allow foreign transactions.
That said, while the data on Bitcoin use in distressed regions of the world is promising, challenges remain for cryptocurrency to become a solution at scale for people facing economic oppression.
But, here’s what’s evident: In each case, technologists, designers, and activists are racing to tackle the challenges.
The first issue to contend with is privacy. Cryptocurrencies, while often assumed to be completely anonymous, are not. Bitcoin, for example, is pseudonymous. Every bitcoin transaction is recorded and viewable by anyone on the network. If the owner of a bitcoin address is uncovered, the full thread of all their transactions can be unraveled.
Cryptocurrency advocates are acutely aware of this problem and are advancing a range of strategies to address it. One startup, Samurai Wallet, has created a bitcoin wallet that mixes coins with others to block the traceability of user transactions.
Others have expanded beyond bitcoin to start new cryptocurrencies with novel, privacy-preserving tech. Zcash, for example, uses a complex cryptographic process, called a zero-knowledge proof, that enables people to prove something is true without knowing what that thing is (yes, you heard that right). When sending a private Zcash transaction, the transaction sender, receiver, and amount is completely and mathematically provable, like bitcoin, while remaining private to outside eyes.
Another, Monero, mixes various transactions to obfuscate who is sending how much to whom. Grin is a recent cryptocurrency to launch that, rather than obfuscating details of a transaction, simply doesn’t record them.
A second challenge: Using cryptocurrency requires an internet connection, and access to an open web is not guaranteed. China and other states already heavily censor their people’s use of the internet. If a government wanted to block web use to keep people from using cryptocurrency, they could conceivably do so. Blockstream, an American startup, is working to overcome this by broadcasting the bitcoin network directly onto populated regions of the world. The company recently launched its fifth operational satellite into space, beaming the network directly to users.
Finally, cryptocurrency, even bitcoin, remains hard to use, especially for people with little exposure to technology. New organizations are emerging with the aim of making cryptocurrency more intuitive, user-friendly, and safe for people facing monetary crisis or fiscal oppression. The Open Money Initiative (cofounded by co-author Jamaal Montasser) is working with open source software partners and the Human Rights Foundation to create tools for people in regions in need of censorship-resistant money. OMI is currently conducting research and pilot experiments in support of Venezuelans.
The age of digital money is here. Within decades, physical cash may cease to exist in industrialized societies. Many of us take for granted that we can use our money privately, without fear of reprisal or compromising our prospects. Evidence suggests that for many this may not long be the case. Those intent on social control see the shift to digital money as an opportunity to tighten their grip on civic life and close off financial systems. Even actors without ill intent, once armed with such visibility into people’s financial lives, will likely struggle to wield such power with respect for democratic norms.
Without cryptocurrency, a cashless society is a surveillance society–it enables central control over all aspects of our financial lives.
In its current state, Cryptocurrency offers a framework for digital money–much like cash–that can protect people from the abuses and tragedies that have played out through history, right up to the present-day catastrophe in Venezuela. It creates the anti-surveillance benefits of cash without sacrificing the parts of the modern economy that exist solely on the web.
While the technology remains imperfect, activists, engineers, and designers are sprinting to make this promise into a reality. With the economic might of autocratic regimes reaching new heights and exploitation of personal data accelerating, the stakes are higher than ever. It’s up to us to ensure the shift to digital money advances a free and open future.
Louis Vuitton Owner LVMH Is Launching a Blockchain to Track Luxury Goods
LVHM, the conglomerate that owns Louis Vuitton and many other luxuries brands, is looking to launch a blockchain code-named AURA to track luxury goods. LVMH’s full-time blockchain team has been working with behind the scenes with partners ConsenSys and Microsoft Azure to create a white-label authenticity-tracking blockchain. The platform is built using a modified version of JPMorgan’s Quorum, a permissioned version of Ethereum.
LVMH decided to take a path similar to OmiseGO by intending to offer the service in a white-label form to other brands including its competitors. Rest assured that LVHM understands the friction that technology can create: “So if you are a customer of a luxury brand, you are not going to see AURA; you are going to see the Louis Vuitton app or the app of another luxury brand,” a source close to the project explained.
So why let competitors onto your platform at all? While Neither LVMH nor its partners ConsenSys and Microsoft would comment ahead of the release set to potentially release in May, LVHM seems to have a grander vision in mind for their platform: “They [LVMH] see down the line permissioned and public networks as needing to be interoperable if they are to put the power back to customers. It’s also a way for a global network of distributors and resellers to connect to a network without restriction.”
LVHM seems to understand the greater implications of tokenizing luxury goods. LVHM’s blockchain platform will likely help their bottom line by deterring counterfitters and potentially creating efficiencies their supply chain. It’s not out of the question that LVHM may see the permissioned blockchain as a stepping stone until the day they can reduce infrastructure costs by offloading functions onto the public blockchain. This would be akin to companies transitioning from locally hosted servers to using service providers like Azure or AWS. We may see a day here soon where you are able to use luxury products as collateral on decentralized platforms.
An Update Regarding Our Portfolio
We are diligently working on providing you with our new RSC Managed Portfolio (V3.01) in the coming weeks. We will be posting iterative updates in the discord.
We intend on this portfolio being balanced between the Three Pillars of the Token Economy & Interchain:
Crypto, STOs, and DeFi projects.
We will also make a concerted effort to draw from community involvement and make this portfolio community driven, like our Portfolio call on yesterday’s Discord chat.
Thank you for your patience.
Here’s a sneak peek at the new portfolio:
Here’s our past portfolios for reference:
RSC Managed Portfolio (V2)
RSC Unmanaged Altcoin Portfolio (V2)
RSC Managed Portfolio (V1)