When Twitter starts a crypto war

To view this email as a web page, click here. for the week ending April 21, 2019 Is Delisting Censorship? The crypto space is arguing over whether delisting bitcoin cash SV is censorship, but there may not be a clear answer right now, writes Michael J. Casey. Read more in THE TAKEAWAY below. THIS WEEK'S TOP STORIES Craig Wright takes on the crypto community Craig Wright would have you believe that he is the pseudonymous creator of bitcoin, Satoshi Nakamoto. While the claim isn’t new, Wright has recently been threatening to sue individuals who say he is not, going so far as to send legal letters to anonymous bitcoin user Hodlonaut (and placing a bounty on Hodlonaut's true identity), bitcoin podcaster Peter McCormack and Blockstream CEO Adam Back.  Rather than retract their statements, however, those Wright is threatening are doubling down – and thus far, the broader crypto community seems to be on their side. In response to Wright’s actions, crypto exchanges Binance, ShapeShift and Kraken – among others – have delisted BSV, the bitcoin cash fork created by Wright.  It remains to be seen what the next steps in this war of words will be, though Wright appears to have already served McCormack with a suit. A million dollar prize A new alternate reality game called “Satoshi’s Treasure” has hidden the keys to $1 million-worth of bitcoin across the globe. Revealed exclusively to CoinDesk, the keys to a bitcoin wallet were divided into 1,000 fragments, and a minimum of 400 key fragments are needed to access the funds. The game itself has no rules. Players can collect and unravel clues any way they want, even selling leads if they desire. “Forget about the rules, just go goddamn play,” said Primitive Ventures co-founder Eric Meltzer, the game’s co-creator. Open source code Big Four professional services firm EY is rolling out software designed to help corporate clients use the ethereum blockchain – and it’s taken an unusual step to encourage adoption. Announced Tuesday, EY’s protocol, internally code-named Nightfall, uses zero-knowledge proofs to allow private transactions on a shared ledger. Unlike most such endeavors, EY’s software is intended to run on top of the public ethereum network, not a private variant. And further setting the project apart is that EY is making the product free, with no license at all. Making moves Cryptocurrency exchange giant Binance is about to launch its new fiat-to-crypto platform in Singapore. While the launch was expected sometime this month, Binance CFO Wei Zhou told CoinDesk from a Paris blockchain event: “Next week we are going to launch the Singapore simple buy/sell on-ramp. It will actually be a new product we are launching, as a very easy buy/sell platform so users in Singapore can buy and sell bitcoin with Singapore dollars.” In more Binance news, the exchange says it has launched its new custom blockchain, Binance Chain, which will support its $3 billion BNB cryptocurrency (currently running on ethereum). The firm said it will activate BNB on the new network on April 23, after which holders of the token are encouraged to migrate their balances to the new network. Old ethereum-based tokens will be destroyed as new BNB tokens are created on Binance Chain. As of April 23, Binance Chain Explorer and Web Wallet will be open to the public and Binance.com will be able to help users with the mainnet swap, it said.  Physical futures plan Cryptocurrency derivatives provider LedgerX plans to become the first U.S. firm to offer physically settled bitcoin futures contracts. The company says it has filed for a designated contract market (DCM) license, which would allow it to offer physically-settled bitcoin futures products to its customers. Perhaps more notably, LedgerX aims to target retail investors with its new offering, said Juthica Chou, who serves as both chief risk and operating officer at LedgerX. Once approved, LedgerX will offer bitcoin, bitcoin options and bitcoin futures to retail customers through a new platform, dubbed Omni.   SEE ALL COINDESK STORIES QUOTE OF THE WEEK "Imagine every car maker and any shipment company runs their own private blockchain. A bunch of silos doesn’t scale too well. While private blockchains are useful, they don’t solve the problem of a massive, scalable transformation.” – Paul Brody of EY, explaining the consulting giant's focus on public blockchains for enterprises.   The Takeaway Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative. Is cryptocurrency exchange Binance’s delisting of bitcoin SV a form of censorship? And if so, doesn’t that make hypocrites out of all the Bitcoin Core supporters and Craig S. Wright haters who cheered the downgrading of the latter’s competing bitcoin project? Are they not applying a double standard by simultaneously arguing for immutable, “censorship-resistant” blockchains? These are the questions bitcoin skeptics are putting to a cryptocurrency community they view as failing to comply with the Voltairean maxim that one should fight for someone’s right to say something regardless of whether you agree with it. (Yes, I know it wasn’t actually Voltaire who said that…) Whether this “gotcha” is fair or not, it has given rise to a far more interesting crypto debate than the tiresome, yearlong squabble between Craig Wright-supporting BSV holders and Craig Wright-loathing BTC holders, the one that triggered the delisting in the first place. (Before Binance CEO Changpeng Zhao, known as CZ, made his decision, BTC supporters had pressured him to punish Wright for filing defamation lawsuits against Twitter accounts that had refuted the bitcoin SV founder’s claim to be Satoshi Nakamoto.) A popcorn-worthy debate It’s not all that clear who’s winning this debate. If anything, it has provided a reminder that the words used by both blockchain utopians and their hard-nosed realist critics often fail to adequately capture the nuances of what’s happening in the crypto ecosystem or, for that matter, in the wider world of social media and online communities. The bitcoin critics' main point is compelling.  It's that a decision to delist BSV cannot be about whether CSW is a jerk (there is almost universal consensus that the Australian "Faketoshi" meets that characterization). Jerks should not be censored just for being jerks, and doing so contradicts the Cypherpunk ideal of censorship-resistance to which many bitcoin believers subscribe. (Full disclosure: Craig Wright blocked me on Twitter for using the j-word against him – this from his @ProfFaustus account, which, intriguingly, appears to have been deleted in recent days.) As I munched on my popcorn, I found myself sympathizing with the ever-astute Angela Walch, a constant, formidable critic of blockchain advocates’ sweeping, hand-wavy claims to the magic of “decentralization.” In a stage-setting tweetstorm, Walch pointed out that the cheerleading for Binance’s move exposed the “cognitive dissonance in what the space claims to be about.” But then, along came investor Ari Paul, who gave the whole thing a different context. You see, Paul said, the standard of censorship resistance does not extend to private entities that provide services on top of open systems, much as Binance does with the bitcoin protocol and those of other blockchains. These private agents are free to deal with their clients as they wish. That seemed fair enough too. It accurately distinguished between the decentralized rule-setting of each system’s underlying blockchain – the layer to which the aspiration for censorship-resistance applies – and the centralized entities that access it. And on that basis, Paul’s point matched how U.S. courts approach First Amendment lawsuits. To preserve free enterprise, courts routinely allow privately-owned entities to pick and choose whom they deal with and what information they publish, whereas they will curtail government entities’ efforts to restrict the speech of private citizens and businesses. Similarly, we could argue that a price-quoting and trade-executing crypto exchange whose business decisions occur off-chain isn’t subject to the rigid, quasi-constitutional on-chain rules for equitable treatment that govern the decentralized network running a blockchain’s publishing protocol. An exchange can refuse the prices and transactions of whomever it pleases. Doing so does not compromise the integrity of the free-speech/anti-censorship standards of the underlying blockchain’s governance system. Holding the big guys to account The problem is there are countless different blockchains. And within that environment, exchanges such as Binance don’t so much operate an application (i.e. run a private business) and subject it to a single blockchain’s governance system, but rather service the needs of people moving across those systems. Using the same constitutional analogy, they are flag-less shippers carrying information across borders; they aren’t jurisdictionally bound by any one government. In playing this role, cryptocurrency exchanges aren’t executing the censorship-resistant rules of a blockchain but, as the on- and off-ramps between different blockchains’ assets, they are nonetheless vital to the functioning of the wider cryptocurrency ecosystem. That’s why critics like Walch are rightly highlighting their actions. So far, exchanges represent pretty much the only proven business use-case in this space. They are the cryptocurrency industry. Surely, they should be held to high standards of neutrality. Comparisons can be drawn to the debate over “deplatforming” on Twitter, Facebook and other social media entities. On the one hand, these can be viewed as private entities free to censor whomever they like. On the other, because of their giant networks, the public naturally wants to hold them to a different standard. Given the enormous role they play in our communication system, there’s a strong case for regulating their publication decisions, much as governments regulate public electricity or water utilities. Due to its size, Binance could be characterized as the cryptocurrency equivalent of a dominant social media network. Just as being banned from Twitter and Facebook can seriously hurt the economic performance of a social media influencer, so too can a Binance delisting seriously hurt the value of a crypto token. The role of regulation That brings us to another analogy proffered by critics of Binance’s actions. Imagine the outcry, some said, if leaders of the New York Stock Exchange or the Nasdaq – both integral to a functioning capital market ecosystem – suspended trading in a company because they didn’t like the comments of its CEO. The point: Binance should be held to similar standards of impartiality. But the comparison is imperfect. The NYSE and Nasdaq, as well as countless other formal stock exchanges around the world, frequently delist companies for reasons of wrongdoing. It’s just that they apply a highly regulated framework when doing so. Take a look at the most up-to-date list of “issues pending suspension or delisting” at Nasdaq and you’ll see that the reason many companies are on that list is, very often, one of “regulatory/non-compliance” issues. In other words, whatever “censorship” decisions that sophisticated, traditional exchanges make tend to occur on the basis of rules set by an external governance system. In the U.S., it’s an interconnected hierarchy that includes exchange members; self-regulatory organizations such as the Financial Industry Regulatory Industry (FINRA); the exchange’s own internal compliance teams and oversight boards; various bodies of legislation; and external enforcement agencies such as the Securities and Exchange Commission (SEC). Now consider a thought for CZ. He was under enormous pressure from both sides of the BTC vs. BSV fight to decide what he felt would best serve his and the industry’s long-term interests. But he did so without a set of external rules to refer to. If he had one, he could more comfortably have argued that his hands were tied. I don’t expect CZ to call for more regulation. But the fact is that regulation, by externalizing the listing rules criteria, would, at least in these kinds of matters, help crypto exchanges manage their public image. It might be tempting to believe these are just temporary problems because new decentralized exchange models will let clients maintain custody of their assets and independently execute their trades. But execution isn’t the main reason we depend on exchanges; it’s that, as centralized hubs, they bring many buyers and sellers together in one place, enabling effective price discovery. The harsh reality is that, until someone achieves the extremely difficult goal of creating an effective, fully open-source trade-matching and price-discovery algorithm running on an entirely decentralized network, cryptocurrency ecosystems will depend upon the network effects that these necessarily centralized entities generate. And that’s why consistent listing standards, and the question of how to enforce them, matter. In the absence of consistent, externally enforced rules, it’s perhaps unfair to hold Binance – a centralized entity, not a miner in a blockchain – to a “censorship-resistance” standard. CZ had to make a decision amid the chaotic hurly-burly of a boisterous community. By the same token, we can perhaps excuse the seemingly hypocritical stances of many BTC investors who supported that decision. But that should not stop users from demanding that crypto exchanges establish and adhere to more consistent standards and rules. A company of such size and influence over the crypto ecosystem must be held to account – a standard no different from what we should demand of banks in the fiat ecosystem. This, and not the tortured discussion over what “censorship” means, is the most important lesson to take from the latest bout of crypto agita stirred up by my Aussie compatriot. — Michael J. Casey BEYOND COINDESK... CORNELL UNIVERSITY: A study led by Cornell University researchers found that bots are front-running trades on exchanges by anticipating regular users' trades and paying higher fees. This sort of activity may phose "a systemic risk to consensus-layer security," and as such, may be an issue for the ethereum network, the paper says. That being said, the document notes that there remain unanswered questions about how bots are currently set up, as well as the fact that decentralized exchanges only account for a small volume of transactions.  DECRYPT: John McAfee famously promotes various cryptocurrencies, and has admitted to charging for such promotions in the past. However, companies say that they do not receive anywhere near the value they pay for, reports Decrypt’s Tim Copeland. Copeland interviewed former and current Team McAfee partners, finding that the former computer programmer and businessman charges 20 percent of a crypto project’s tokens to promote them, though at least one project is threatening to sue him to recoup their tokens. For his part, McAfee seems to have denied the claims in an email to Decrypt, and after the article’s publication, Bitfi (a startup McAfee promoted) also pushed back against certain statements in the piece. WIRED: This isn't strictly crypto-related, but it is a fascinating read. Facebook creator Mark Zuckerberg pledged to fix the site's many issues around privacy and news in 2018 – but this did not pan out as planned, write Nicholas Thompson and Fred Vogelstein in Wired. The two examine how the social media giant responded to the Cambridge Analytica scandal and other public-relation disasters over the past 15 months, as well as how the company (which is reportedly developing an in-house cryptocurrency) plans to move forward.  WHAT WE'VE BEEN UP TO COINDESK WEBINAR ALERT: In markets, liquidity is everything. Or is it? In the next episode of CoinDesk’s Institutional Crypto webinar series, Noelle Acheson will talk to Max Boonen, founder and CEO of crypto liquidity provider B2C2, about what we’re getting wrong about OTC desks and how they are likely to evolve over the next few years. They will also touch on what the market is looking for in crypto derivatives, what the different instruments represent, and where future liquidity could come from. Join us for this wide-ranging discussion on April 26th at 10:00am ET. You can sign up for free here. Was the new movie "Crypto," starring Kurt Russell and Luke Hemsworth, a searing insight into the nascent space? CoinDesk reporters Bailey Reutzel and Brady Dale watched and reviewed. Head on over to our YouTube channel to see how it fared. The newest episode in our ongoing "Road to Consensus" podcast series features Eric Piscini of Citizens Reserve, who told CoinDesk research director Nolan Bauerle that decentralized platforms are the greatest advantage for the blockchain space. Also be sure to check out our last episode, in which Nolan spoke to Edward Woodford, CEO of exchange Seed CX. CoinDesk's Construct event is back and it's being held alongside Consensus on May 13-15 in New York City. Developers looking to learn about the biggest public and private blockchain technologies can register for Construct for only $299.  Send feedback on CoinDesk Weekly to marc@coindesk.com or troll him on Twitter. We'll see you here next Sunday. Thanks for reading!

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