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Crypto-currencies and Blockchain

Most Common Bitcoin Myths Busted

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Marius Reitz, Luno’s GM for Africa, unpacks the most common misconceptions and questions about Bitcoin. 

Bitcoin has smashed through all-time price highs in 2021 – and many other cryptocurrencies have too. Many people hold strong views – that Bitcoin is a scam, a crashing bubble and that it has no intrinsic value at all. What is all the fuss about? Is it just a passing fad or the future of money?

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A longer term view of Bitcoin performance

Only time will tell whether Bitcoin will continue to surge or not. For now, however, it may be useful to take a longer term view of Bitcoin’s performance. What is evident is that reports of the demise of Bitcoin seem to have been greatly exaggerated. 

 Many former naysayers are now dipping into Bitcoin and other cryptocurrencies and adoption rates continue to rise. JP Morgan, one of the largest investment banks in the US, indicated that while more than $3 billion had flowed into the Grayscale Bitcoin Trust in the last quarter of 2020, gold ETFs had bled $7 billion over the same period.

 Bitcoin is a monetary network. When the concept of electricity being used to power appliances in the home was introduced, it wasn’t considered a bubble but an engineering breakthrough. There will always be people who are afraid of progress.

 Myth: With wild volatility, you can’t take Bitcoin seriously

Many have declared Bitcoin dead (or dying), simply based on the latest changes in the price. The technology that drives cryptocurrencies like Bitcoin is one of the most important financial innovations of our time and the current price of Bitcoin has nothing to do with the long-term value that cryptocurrencies will bring.

 If you’re a trader, the volatility can be stressful and potentially profitable, but if you believe in Bitcoin as the future of money, your investment objectives are long-term and therefore short-term volatility matters less to you.

 Volatility has decreased over time and the market is stabilising. Michael Saylor, CEO of MicroStrategy, who led the charge when his listed company elected to keep a significant portion of its treasury reserve in Bitcoin, has an interesting view of volatility: “Things that are dead are not volatile. Stability is stagnation. Living things are volatile.” 

 Myth: Bitcoin has no intrinsic value 

This thinking could be applied to any currency. If people stopped believing in the dollar, it would also have no value. The price of Bitcoin is determined by supply and demand: the buyers who want Bitcoin and the sellers who have Bitcoin. 

 The reason Bitcoin has value is that it is a handy form of value or money commonly accepted by people. It is used to transfer value and buy or sell things. Unlike fiat currency – like the US dollar or the rand – where its value and legal status are enforced by the government, Bitcoin’s value comes from its code, infrastructure, scarcity (there will only ever be 21 million) and adoption. By upgrading the financial system, Bitcoin empowers people. 

 Bitcoin has grown exponentially and has surpassed a market cap of $1 trillion, yet this is still relatively small as an asset class.

 In the context of the constant devaluation of fiat currencies, people are looking for ways to protect their wealth, including governments. Bitcoin is set to disrupt the world of money in the same way the internet disrupted everything a few years ago. Many believe that it is the future of money.

 Myth: Bitcoin cannot be a currency, investment, and a store of value

To be termed a currency, Bitcoin would need to be divisible, scarce, durable, transferable and fungible (can be exchanged for the same value or type). It meets all of these requirements – one Bitcoin divides into units as small as one hundred millionth; it is scarce as the total supply is limited to 21 million Bitcoin; it is durable in that it it doesn’t exist in physical form so it cannot wear out; Bitcoin is digital so you can transfer it to anyone, anywhere in moments and finally, any particular Bitcoin is equal in value to any other Bitcoin.

 Bitcoin crosses many lines: it can be used for payment, like a currency; it can be used as a store of value since it has controlled supply, like gold or other commodities; and it derives more value and utility from developers who improve the code and ways it can be used.

 This multifaceted aspect of Bitcoin makes it tricky to decide whether it should be treated as an asset, as a currency, as a payment mechanism or as an open, global technology. Regulators grapple with this as they decide how it should be treated. 

 Myth: Bitcoin is a Ponzi or pyramid scheme

A pyramid scheme recruits members by promising them payment or rewards for enrolling others. A Ponzi scheme is very similar to a pyramid scheme, with the difference that you are not rewarded for enrolling other people. Instead, you earn a part of whatever recruits pay. 

 Bitcoin operates on a decentralised model with no hierarchy. There is no reward for buying coins nor are there guaranteed returns. In addition, the blockchain on which Bitcoin is built is entirely transparent; anyone, at any time, can inspect the public ledger. If you are considering investing in Bitcoin, increase your knowledge on Luno’s free learning portal

 Big companies like PayPal and Tesla entering the crypto space, as well as listings like the Coinbase exchange on the Nasdaq, should help to end this myth.

 Myth: Bitcoin is only used by criminals

People found a way to carry out illegal activities, long before Bitcoin existed – they always will. But criminal use of crypto has shrunk dramatically over the past few years. In fact, cryptocurrency-related crime fell significantly during 2020, according to the latest Chainalysis report. In 2019, criminal activity represented 2.1% of all cryptocurrency transaction volume whereas in 2020, the criminal share of all cryptocurrency activity fell to just 0.34%. 

 Although Bitcoin is pseudo-anonymous in that it cannot be immediately linked to one’s identity, Bitcoin is actually a terrible choice for carrying out anything illegal. Once your identity is linked to Bitcoin, your entire history is available and movements are far easier to trace than cash as blockchain technology is a public ledger.

 As Bitcoin continues to gain legitimacy and use cases, data and law enforcement is getting better at tracing transactions to search for criminal uses and figuring out to whom an address belongs. 

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Crypto-currencies and Blockchain

Blockchain Researchers Use AI to Detect Bitcoin Money Laundering

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Researchers from Elliptic, IBM Watson and MIT have used AI to detect money laundering on the Bitcoin blockchain. Back in 2019, blockchain analytics firm Elliptic published research with the MIT-IBM Watson AI Lab showing how a machine learning model could be trained to identify Bitcoin transactions made by illicit actors, such as ransomware groups or darknet marketplaces.

Now the partners have put out new research applying new techniques to a much larger dataset, containing nearly 200 million transactions. Rather than identifying transactions made by illicit actors, a machine learning model was trained to identify “subgraphs”, chains of transactions that represent bitcoin being laundered.

Identifying these subgraphs rather than illicit wallets let the researchers focus on the “multi-hop” laundering process more generally rather than the on-chain behaviour of specific illicit actors.

Working with a crypto exchange, the researchers tested their technique: of 52 money laundering subgraphs predicted and which ended with deposits to the exchange, 14 were received by users who had already been flagged as being linked to money laundering. On average, less than one in 10,000 accounts are flagged in this way “suggesting that the model performs very well,” say the team. The researchers are now making their underlying data publicly available.

Says Elliptic: “This novel work demonstrates that AI methods can be applied to blockchain data to identify illicit wallets and money laundering patterns, which were previously hidden from view. “This is made possible by the inherent transparency of blockchains and demonstrates that cryptoassets, far from being a haven for criminals, are far more amenable to AI-based financial crime detection than traditional financial assets.”

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Crypto-currencies and Blockchain

Cryptocurrency: Binance Introduces Crypto Price Widget

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Binance has announced the introduction of the Binance Crypto Price Widget as part of its ongoing effort to make cryptocurrency trading both more accessible and more widely understood.

The Binance Crypto Price widget is an easy to install, easily integrated tool that provides value to website visitors by sharing live, reliable updates on top cryptocurrency prices from the largest cryptocurrency exchange in the world.

“Websites benefit from the widget because it offers an engaging, interactive experience for visitors,” points out Binance’s Director in West & East Africa, Nadeem Anjarwalla. He further explains that the widget delivers news around prices, data and developments in the crypto world. “By providing this information, visitors are encouraged to spend more time on the site. But, more than this, because the information is credible and reliable, the website gains a reputation for credibility and reliability, too. In this way, it is able to build an audience who are regular to check in regularly with a source they trust.”

The information on offer is extremely comprehensive, offering live prices of up to 10 cryptocurrencies as well as fiat currencies. The widget is flexible, too, with website owners able to choose a customizable price, while the appearance can also be customized to match the website design and branding. Owners can also choose to integrate the widget as a ticker providing real-time feeds, or a blog.

Anjarwalla says that the widget can be installed directly onto a website with just a few clicks, starting with a visit to the Binance Crypto Price Widget page. “From there, website owners choose the appropriate code and paste it onto the location on their own website where they would like visitors to access it.”

The benefits for visitors are clear, too: having access to up-to-the-minute information for the most popular cryptocurrencies, from the world’s largest cryptocurrency, is a major advantage for those wishing to build their crypto portfolio.

“We realise that, for many would-be investors, the world of crypto remains difficult to understand and somewhat daunting. Tools like the Binance Crypto Price Widget have been made available specifically to change this mindset and to make investing more simple for everyone,” Anjarwalla concludes.

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Crypto-currencies and Blockchain

Mastercard and Web3 Players Join Forces on Blockchain Transactions Trust

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Mastercard is teaming up with Web3 players on an on-chain identity and verification framework covering a variety of applications in payments, remittances, ticketing and NFTs.

Mastercard Crypto Credential is designed to help companies, developers, and individuals to realise the full potential of powering payments, commerce, and economic value on-chain and across borders.

Among the partners onboard are crypto wallet providers Bit2Me, Lirium, Mercado Bitcoin and Uphold, which are working on an initial project to enable transfers between the US and Latin America and the Caribbean corridors.

The company is also teaming up with public blockchain network organisations Aptos Labs, Ava Labs, Polygon and The Solana Foundation. Aptos says it is among the shortlist of blockchains to enable the identity and attestation element of sending and receiving funds through Web3.

The partners also intend to explore the utility of identity-oriented Web3 solutions use cases like NFTs, ticketing, enterprise, and payments.

Raj Dhamodharan, EVP, digital asset and blockchain product and partnerships, Mastercard, says: “With Mastercard Crypto Credential, we can help ensure that those interested in interacting across Web3 environments are meeting defined standards for the types of activities they’d like to pursue.

“Mastercard Crypto Credential will not only define verification standards and levels, but also provide necessary enabling technology to help bring more use cases to life.”

Separately, Mastercard has signed up another six blockchain and digital asset startups for its StartPath programme, giving participants training, access to channels and customers as well as subject matter expertise, and an opportunity for technical collaboration. The new members are Axelar, Cheeze, Coala Pay, Qonbay.io, RociFi Labs and Suberra.

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