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Bitcoin (BTC) flaws set stage for alternatives

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Bitcoin, the most famous cryptocurrency in the world, has some shortcomings – and that, according to a Cornell University professor, has led other digital currencies to develop more workable options.

It’s not as anonymous as people think, and “mining” bitcoin is bad for the environment, stressed economics professor Eswar Prasad. It doesn’t work well as a currency either, he told CNBC on Thursday.

One interesting aspect is that other cryptocurrencies have come up with solutions to address some of Bitcoin’s shortcomings, said Prasad, who was formerly head of the China division of the International Monetary Fund.

1. Mining is harmful to the environment

Bitcoin mining refers to the energy-intensive process required to produce new coins and ensure that the payment network is secure and verified.

The electricity used to validate transactions on the Bitcoin blockchain as well as the mining process is “certainly not good for the environment,” said Prasad.

Tesla CEO Elon Musk said last month that his electric car company is no longer accepting bitcoins as payment for environmental reasons, causing the price of bitcoin to drop 5% in minutes.

He has since made a U-turn, saying in a tweet on Sunday that Tesla will accept Bitcoin in transactions if it can confirm “reasonable” and “clean energy use by miners”.

Crypto miners use specially designed computers to solve complex mathematical equations that make a coin transaction effective. The miners are rewarded for their efforts by getting paid in the cryptocurrency.

However, the entire process of creating a bitcoin requires a lot of energy and, according to the Cambridge Bitcoin Electricity Consumption Index, can use more electricity than entire countries like Finland and Switzerland.

On the other hand, Ethereum – the second largest cryptocurrency sometimes seen as an alternative to Bitcoin – is developing a different mining method that uses less energy, as Prasad pointed out.

Read more about cryptocurrencies from CNBC Pro

It is called “Proof of Stake” and is the underlying mechanism for Ethereum, which activates so-called “validators” in the network if they can prove that they own ether or a “stake”.

Ultimately, it should eliminate the need for massive computing power to validate transactions, and the Ethereum Foundation claims it will use 99.95% less energy than before.

“This will be a lot less energy intensive and could offer many of the benefits that Bitcoin should offer. It could also make transactions a lot cheaper and faster, ”said Prasad.

It’s not there yet, however, he added.

2. Not so anonymous after all

Earlier this month, U.S. law enforcement officials announced they had recovered $ 2.3 million in Bitcoin paid to a cyber criminal group involved in the ransomware attack on the Colonial Pipeline in May.

The FBI said its agents were able to identify a virtual wallet that the hackers used to collect payments from the Colonial Pipeline.

“The main idea of ​​Bitcoin … was to provide pseudonymity,” said Prasad. “But it turns out that if you use Bitcoin a lot, and especially if you use Bitcoin to get real goods and services, it will eventually become possible to link your address or physical identity to your digital identity.”

What is interesting, he said, is that there are other cryptocurrencies trying to fix this and provide more anonymity. He named Monero and Zcash as examples.

Chris Ratcliffe / Bloomberg via Getty Images

“So Bitcoin has really started a search for a better alternative and people seem to be looking for a medium of exchange that doesn’t have to go through a trustworthy institution like the government or a commercial bank – but that’s not quite there yet “said Prasad.

3. Doesn’t work well as a currency

In theory, Bitcoin should provide an anonymous and efficient medium of exchange, but “it didn’t work in that regard,” said the economics professor.

Rather, it is “slow and awkward” to use Bitcoin to pay for goods and services, and the market is very volatile, Prasad said.

Bitcoin is prone to large fluctuations in volatility, as evidenced by the 30% decline in a single day over the past month.

“So you could take a bitcoin to a store and get a cup of coffee one day and a lavish meal with the same bitcoin the next. So that doesn’t work well for the medium of exchange, “he said.

Bitcoin has become a speculative asset for people who hope it will increase in value instead of using it as a means of payment, Prasad said.

– CNBC’s Sam Shead contributed to this report.

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Why Web 3.0 Tokens Might Be the Next Hot Trade in Cryptocurrencies

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With Bitcoin prices stuck in a month-long queue, some cryptocurrency traders are speculating about what may be the next hot market bet: digital assets linked to visions of a decentralized internet, colloquially known as Web 3.0 tokens.

Data tracked by Messari and published by Jeff Dorman, Arca Chief Investment Officer, shows that the cryptocurrency subsector “Web 3.0 tokens” increased 22% in the week ending August 1st, and Bitcoin and everyone else Subsectors, including non-fungible tokens, are dwarfed (NFTs). Bitcoin, the largest cryptocurrency by market value, gained 10%.

For the year to date, tokens related to decentralized internet applications have seen an average increase of 244%, lagging the 2.726% increase of the NFT subsector but surpassing Bitcoin’s appreciation by 37%.

Related: Market Wrap: Bitcoin and Ether rise on bullish sentiment

Some of the best-known Web 3.0 coins, like Livepeer (LPT), Helium (HNT), and BitTorrent (BTT), have soared at least 800% this year despite a collapse in cryptocurrency markets since April, according to Messari.

“Seeing the Web 3.0 ecosystem grow exponentially since the beginning of the year and keep most of its profits even after the surrender in May is very positive for the crypto market,” Nick Mancini, research analyst for Trade The Chain told CoinDesk. “Higher prices are directly linked to increased demand and expansion of services in each shift, and this allows the ecosystem to continue to grow.”

Web 3.0 refers to a paradigm shift for the Internet operated by network subscribers worldwide and defined by a set of open, trust-minimized and decentralized networks and protocols that offer services such as computing, storage, bandwidth, finance and identity.

For example, the Ethereum-based Livepeer protocol provides a marketplace for video infrastructure providers and streaming applications, while Filecoin and The Graph provide decentralized file storage and data management networks. Helium uses blockchains and tokens to motivate consumers and small businesses to deploy and validate wireless coverage and transfer device data over the network.

The story goes on

Related: Bitcoin News Update for August 4, 2021

Messaris Tracker reveals that the Web 3.0 token subsector, spanning over 40 coins, has an overall market valuation of $ 25 billion, excluding Oracle provider Chainlink. (The Oracle provider is widely associated with decentralized financing and has a market capitalization of $ 10 billion).

However, looking at prominent projects like The Graph, Filecoin, Helium, and Livepeer, the market capitalization of Web 3.0 tokens is less than $ 15 billion. That’s only 2% of Bitcoin’s total market cap of $ 735 billion. But it’s comparable to the size of the Decentralized Finance Area (DeFi) a year ago. Messari data shows the DeFi subsector now has 137 assets and is worth over $ 50 billion.

Waiting for mainstream attention

While the Web 3.0 tokens far outperformed Bitcoin and other big coins this year, the sector has yet to experience the euphoria or attention of the mainstream that Bitcoin, Ethereum, DeFi, NFT and even Ethereum Layer 2 projects have seen since October 2020 have received .

That’s probably because the underlying technology is relatively complex.

“Web 3 is not as easy to understand as DeFi, and it is probably 12 months behind DeFi in terms of mainstream notoriety,” said Kyle Samani, co-founder and managing partner of Multicoin Capital. “We expect this to change as consumer-facing applications based on NFTs, social tokens and creator monetization increase over the next 12 months, such as Audius, Mirror and many others.”

The DeFi boom began a year ago and has remained intact to this day. The market capitalization of this sector has grown from around $ 5 billion in early 2020 to over $ 50 billion at press time.

Samani is confident that Web 3.0 tokens will catch up as DeFi gets a bad rap at times. however, there is no negativity associated with the idea of ​​a decentralized internet. Recently, Dan Berkovitz, commissioner for the Commodity Futures Trading Commission (CFTC), said DeFi derivatives could be illegal in the US

“Nobody really says that The Graph, an indexing protocol for querying networks like Ethereum and Solana and IPFS, is bad, while many people in the existing financial system say DeFi is bad,” Samani said. “As awareness of Web 3 grows, it’s hard to see anything other than general support and enthusiasm.”

Institutions chip-in

While mainstream adoption is still at least a year away, capital investors are putting money into Web 3.0 tokens. According to the official website, Multicoin Capital is invested in The Graph, Helium and Livepeer.

Grayscale, the world’s largest digital asset manager and the preferred place for institutional investors to grapple with digital assets, launched a Livepeer Trust in March. Rayhaneh Sharif-Askary, director of investor relations at Grayscale Investments, told CoinDesk last month that investors are diversifying into Web 3.0 tokens.

“It is a diversification within the asset class, whether investors want to use Bitcoin as a store of value or Ethereum for smart contracts,” said Sharif-Askary.

“And then the other applications build on top of these networks and solve other real-world problems,” she said, adding that Grayscale’s Livepeer Trust is structurally identical to the groundbreaking Grayscale Bitcoin Trust (GBTC) (Grayscale is a unit of Digital Currency Group, an investment holding company that is also the parent company of CoinDesk.)

Livepeer’s LPT token is up 1,050% this year. The log’s weekly revenue increased ten-fold to over $ 10,000 in February through June, according to data provided by Web3Index.

Doug Petkanics, CEO and co-founder of Livepeer, told CoinDesk that online streaming is a $ 70 billion market and accounts for 80% of internet traffic today. In addition, analysts predict the market will grow from $ 70 billion to $ 250 billion over the next five years, Petkanics said. The outlook for The Graph and Ocean Protocol also looks good, as Messari’s second-quarter report said.

Strong use case aside, many of these Web 3.0 tokens offer attractive returns through Staked, a platform that allows investors to generate returns from staking and DeFi without keeping their crypto assets.

For example, Helium’s HNT token currently offers an annualized nominal return of 8.7%, while The Graph’s GRT offers a 15% return and LPT offers a 30% return. The high returns led to a positive sentiment for these tokens, as reflected in the sentiment chart below.

“Traders have felt optimistic about them, which amplifies a network effect,” said Mancini. “Dealers benefit and get involved and in turn tell others about the oversized opportunity.”

The crypto market is much more than Bitcoin

Gone are the days when investors viewed crypto markets as synonymous with Bitcoin. While Bitcoin remains the leading cryptocurrency by market value, the recent underperformance compared to other coins suggests investors are digging deeper into digital asset markets to find investments with faster growth potential.

“Weekly data might not mean much, but if we look at three months, six months and 12 months, there is a clear shift away from Bitcoin to other subsectors, including Web 3.0,” said Jeff Dorman of Arca on a Telegram call .

According to Arcas research note released earlier this week, Bitcoin had “both bad up-capture and bad down-capture” this year. In plain English, Bitcoin struggled to outperform other large coins during the market-wide downturn after mid-April, but was also under-challenged when the market rallied in recent weeks.

According to Dorman, the data shows that some new investors are bypassing Bitcoin and Ether and jumping straight into other subsectors of the industry. Historically, investors have used the top two coins as gateways.

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What’s Bitcoin? A beginner’s guide to the world’s first cryptocurrency

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Bitcoin (BTC-USD) – the world’s first digital currency – has been a hot topic in financial circles, at least in recent years, and it probably doesn’t need to be introduced.

Polls suggest that the majority of Americans have at least heard of it. For laypeople, Bitcoin is a virtual currency (also known as cryptocurrency) that can be exchanged through online transactions and is stored in a digital ledger. Once traded for pennies on the dollar, a unit now costs nearly $ 40,000 with a market capitalization of nearly $ 750 billion.

Although the outlets that accept cryptocurrencies are still limited, Bitcoin is arguably the most easily exchangeable of all cryptocurrencies. A small but growing number of service providers are accepting the virtual currency, which can be used to buy goods in video games, exchange them for US dollars or other fiat currencies, and in some places even pay for goods and services.

Troubled beginnings

Bitcoin was founded in 2008 by an unknown person or group called Satoshi Nakamoto. Although feverish speculation has surrounded Nakamoto’s true identity – and some have claimed to be Nakamoto – it remains unconfirmed.

Nakamoto began working on the code that would eventually serve as the backbone of Bitcoin in 2007. A cryptocurrency whitepaper was first published in 2008 that created the original software reference implementation (the program that set the technical standards for Bitcoin). and served as an effective starting point for the cryptocurrency.

Bitcoin was then created as open source code, meaning virtually anyone could use it. To date, there are an estimated more than 11,000 cryptocurrencies in the market.

Given its libertarian beginnings, the main differentiator of Bitcoin is its decentralized nature. Unlike other forms of payment, no central organization or unit controls the currency or has the power to regulate the creation of more Bitcoin or transactions with it.

The story goes on

Transactions are secured using blockchain technology (more on this below), but no agency has the power to reverse transactions and there is no clearing period before funds can be distributed. It is precisely these characteristics that have raised regulatory concerns about the potential for theft, fraud and illegal transactions.

How it works

Bitcoin mining computer servers can be seen in the Bitminer factory in Florence, Italy, April 6, 2018. Picture from April 6, 2018. REUTERS / Alessandro Bianchi

The process of creating Bitcoin is known as mining. Miners perform intensive computer operations to verify transactions on the Bitcoin network. Mining rewards users for solving complex math problems. Bitcoin uses a “proof-of-work” network that confirms transactions by proving that a certain amount of computational effort has occurred.

Mining requires a significant amount of computing power, which has led to criticism of Bitcoin for the energy-intensive process being bad for the environment – a point recently raised by Tesla (TSLA) CEO Elon Musk, who is launching a firestorm in the crypto markets triggered.

Bitcoin uses blockchain technology, an innovation of the 21st century that makes it possible to link transactions via a digital ledger. The cryptocurrency was the first application of this technology, but has since expanded and used in other finance and technology applications.

Price bubbles & volatility

Bitcoin’s price action isn’t for the faint of heart, one reason why critics argue that it’s not stable enough to be a successor to fiat money. And whether or not Bitcoin has intrinsic value has been discussed intensively.

“Bitcoin is not a currency – it is an asset,” said Pavan Sukhdev, president of the environmental protection organization WWF International and former managing director of Deutsche Bank, in a recent interview with Yahoo Finance. He pointed to the extreme volatility and lack of support value as reasons for its illegality.

Eswar Prasad, a professor at Cornell University, was even more blunt. “Bitcoin was developed as a digitally anonymous medium of exchange that did not involve a trusted third party such as a central bank, but Bitcoin failed miserably in its stated goal,” he recently told Yahoo Finance.

For example, in the spring of 2011, the price rose from USD 1 to USD 32 within three months. In November of that year, Bitcoin saw a sharp drop to around $ 2 per coin. This was just the first of many price bubbles to make Bitcoin rise and fall – both fast and strong. And in December 2017, the price of a unit hit a new all-time high of over $ 20,000.

During this time, Bitcoin rose to the mainstream and shaped the first wave of “Bitcoin millionaires” (and later Bitcoin billionaires). The bull market was again volatile, dragging the currency below $ 7,200 in two years.

In this photo, taken in Kiev, Ukraine on April 13, 2021, the price of the virtual cryptocurrency Bitcoin is displayed on a phone screen.  Bitcoin cryptocurrency jumped over $ 60,000, media reported on April 13, 2021 in Kiev, Ukraine.  (Photo illustration by STR / NurPhoto via Getty Images)

In this photo, taken in Kiev, Ukraine on April 13, 2021, the price of the virtual cryptocurrency Bitcoin is displayed on a phone screen. Bitcoin cryptocurrency saw a surge of over $ 60,000, media reported on April 13, 2021 in Kiev, Ukraine. (Photo illustration by STR / NurPhoto via Getty Images)

However, since Bitcoin has now found its sea legs, it gained wider mainstream adoption and benefited from investments from well-known companies and banks. Bitcoin hit an all-time high of over $ 60,000 in April before falling back to just under $ 40,000 in late July.

Tesla, Black Rock, Inc. (BLK), Square (SQ), and BNY Mellon (BK) are just a few of the growing number of large companies that have found a way to break into an expanding marketplace. With more legitimate support, more people than ever have invested in the cryptocurrency.

Investment Opportunity Or Legitimate Currency?

The roller coaster ride of the Bitcoin price is complex and diverse and is increasingly subject to government policy. China has taken crackdown on cryptocurrencies and crypto mining, expressing its displeasure with the subversive nature of a decentralized currency. Since the vast majority of Bitcoin mining takes place there, restrictions on activity in the region can affect the price and contribute to wild swings.

However, the continued enthusiasm for cryptocurrencies in general, as well as a strong fan base, make it likely that Bitcoin will continue to gain acceptance among the public. The annual Bitcoin conference in Miami in 2021 drew 12,000 participants to discuss cryptocurrencies and networks. And some of his most loyal fans have even declared it a religion.

Ihsaan Fanusie is a writer at Yahoo Finance. Follow him on Twitter @IFanusie.

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Neobank launches real-time cryptocurrency conversion

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California-based MovoCash, a neo bank that Launched in 2017, released a new cryptocurrency service for its users last week. The technology called MOVO Chain acts as a curfew on cryptocurrency investments and enables customers to quickly convert 10 different cryptocurrencies into fiat currencies that are stored on a debit card.

The fintech works with the Coastal Community Bank and offers its customers five core services: MOVO Cash, MOVO CASH Cards, MOVO Pay, MOVO Digital Banking and MOVO Chain. MovoCash CEO Eric Solis said the company had registered more than 1.2 million accounts and issued half a million cards.

The company said “United States-based cryptocurrency users can convert and send / spend funds by debit card to anyone with an email address or cell phone number.

The new service can make crypto more important as a medium of exchange. Solis’ vision for the service is for customers to “use Bitcoin and other major cryptocurrencies as long-term savings and fiat for their daily payments.”

In order to process the conversion of cryptocurrency into cash, neobank has teamed up with the payment service provider BitPay.

According to Solis, Bitpay acts as a firewall “between the bank and the crypto” so that “over time [the payment] If you get anywhere near the bank, it’s back in fiat currency. “More specifically, the payment is stored in the form of tokens on an electronic debit card that can be sent to another electronic device.

Partnership with bank

Eric Sprink, President and CEO of Coastal Community Bank, said he was proud to work with neobank.

“MOVO Chain is providing MOVO customers with a unique solution that enables them to seamlessly convert and send cash values ​​from their Bitcoin or other cryptocurrency holdings,” he said in a statement.

MovoCash caters to a wide audience with its mobile banking services, from celebrities to those who make a living from paycheck to paycheck. Solis does not expect MOVO Chain to be used by all or even most of Neobank’s customers.

“I think the percentage of our users using Bitcoin is probably the same as what you would find in a general sample of society,” he said. The service fills a niche for selected customers who want to use cryptocurrencies like Bitcoin and Ethereum as an asset class, but want to access these funds for payments at any time.

The company recently signed up to Equity crowdfunding on StartEngine. To date, MovoCash has raised $ 219,204 from 106 investors on the crowdfunding site. In total, the fintech has raised around $ 1.5 million for a convertible bond. MovoCash has more than 420.8 million US dollars in user deposits and cites a growth rate of 242% in 2019 and 2020. neobank cites its security and the contactless end-to-end payment experience as reasons for its success.

Solis said he anticipates user accounts growth will grow organically as customers send payments and suggest the app to friends and family.

Movo has competition

MovoCash is hardly the first Neobank to offer its customers services related to cryptocurrencies. Update recently released a Bitcoin Rewards credit card that offers customers 1.5% bitcoin refunds when they use the card. Fintech Paybby plans share a cryptocurrency platform this summer as the company seeks to increase the popularity of crypto with minority investors. The Neobank electricity plans to launch crypto products in the future.

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