With the words ‘Bitcoin’, ‘Ethereum’ and ‘Blockchain’ becoming commonplace in the news over the last year, the world of cryptocurrencies has become more popular and has experienced significant growth. There are now hundreds of new cryptocurrencies all trying to reach the heights that Bitcoin and Ethereum have reached.
One of these rising cryptocurrencies is Monero (XMR), which focusses on privacy as its key selling point. The word ‘Monero’ comes from the language Esperanto where it literally means ‘coin’. Launched in April 2014, the idea behind Monero was to create a digital currency that could provide complete anonymity for senders and receivers whilst still using the revolutionary Blockchain technology. One XMR is currently valued at over $130.
The key behind the Blockchain is that all transactions are recorded on a public ledger allowing anyone to tap in and view all transactions that have ever taken place. Furthermore, using the Blockchain technology enables a currency to be decentralised, removing the need for a central bank or government to overlook the market. It is also impossible to manipulate or falsify transactions which is why the Blockchain technology has become so attractive to banks and organisations around the world, such as Goldman Sachs.
How Monero Keeps Transactions Private
Monero still uses the Blockchain but implements three extra privacy technologies to keep all transactions anonymous: Ring Signatures, Stealth Addresses and RingCT. These technologies are quite complicated; below is a simplified breakdown of how they work.
Ring signatures – hiding where the money is coming from
- Every transaction is put into a group with other transactions that all seem identical. To an outsider looking at the blockchain, it is impossible to tell which source of money is the real one.
Stealth Addresses – hiding who the money is being sent to:
- For every transaction, the sender generates a one-time random address unique to the recipient.
- Whilst anyone can view these addresses, there is no way to make a link between this address (know as the ‘public key’) and the recipient’s real address (their private key), thus preserving the anonymity of the recipient.
RingCT (Ring Confidential Transactions) – hiding the amount being transferred:
- This is the most recent of Monero’s privacy features. It was implemented in January 2017 to update the previous method of hiding transaction amounts. By September 2017 it will be compulsory to use RingCT on all Monero transactions.
- When a Monero transaction is made, the sender has to input their entire wallet for the transaction and then set two outputs, the first as the amount they want to send and then the rest of the balance back to themselves as ‘change’.
- The transaction is verified by the fact that the sum of the inputs is equal to the sum of the outputs which proves that no new coins were created in the transaction.
- However, the actual amounts are not shown. The sender cryptographically commits to sending a certain amount, this can only be understood by the computers verifying the transaction whilst keeping the amount hidden.
- There is also a range proof check built into this technology which prevents senders from committing to values less than zero.
These are all particularly complicated technologies; more detailed information can be found here.
The Value of Monero and Its Recent Rise
As with all cryptocurrencies, the value is simply determined by the forces of supply and demand. Monero is currently valued at around $130 with a market cap of over $2,066,000,000 . This places it in the Top10 cryptocurrencies by market cap and it is increasing by the day. This graph shows how in 2017 the price of Monero has increased significantly, taking it to all-time highs.
In particular, there has been a significant rise recently in August 2017. One of the main reasons for this is that the world’s highest-volume cryptocurrency exchange, Bithumb, added Monero to its platform. This means that Monero is now being traded in the South Korean market which has been extremely lucrative for cryptocurrencies in the past (Ethereum, Litecoin and Ripple). This is mainly because the South Korean traders are particularly interested in cryptocurrencies which differ from the norm. Monero, having a unique technology and a dedicated team of developers has proven attractive to the South Korean traders and could help bring it up in the ranks of cryptocurrencies.
The Value of Privacy
So does Monero have a future? Some may argue that its main customers will be people engaged in illegal activities on the dark net. Famously, the dark net marketplace for illegal drugs, Silk Road only allowed users to use Bitcoin for transactions due to the anonymity. This has caused many to associate cryptocurrencies with illegal activities.
However, there is another side to the coin. If cryptocurrencies were to be widely adopted across economies, merchants would not want everyone knowing exactly how much they are selling and who they are selling to, which is information readily available on a normal Blockchain. Individuals will also not want everyone knowing how much they are spending and where they are spending their money. Everyone should be entitled to privacy of their transactions; this does not necessarily mean that they have something to hide. It can also act as a reassurance for merchants that they do not need to engage in researching where money has come from and how it was obtained as everything is private.
The website XMR.to has helped to bridge the gap between Monero and Bitcoin, the latter being the most popular cryptocurrency in the world. The website allows anyone who owns Monero to send money to a Bitcoin address, which operates on a different Blockchain. The website acts as a middle man whereby the sender simply sends the website their Monero and the Bitcoin address they want to send to. The website will then handle sending the Bitcoin to the recipient. The sender and receiver are therefore not associated whatsoever as the conversion takes place via the website anonymously. This has also helped make Monero more popular and boosted its value.
Furthermore, the US government has started tracking residents who they believe are not paying their taxes on Bitcoin. This is another reason for the recent increase in the price of Monero as it is impossible to track who owns what.
The Future of Monero
With technology advancing at rates nobody ever could have predicted, privacy has become a big concern. With Big Data helping companies for profiles of consumers, being able to remain anonymous will become harder in the future. Whilst some believe other cryptocurrencies such as Bitcoin are anonymous, research at Princeton University has shown how transactions can quite easily be tracked using cookies and by observing the Blockchain. As more people become aware of their lack of privacy online, Monero could become a very important cryptocurrency in the future.
Two New Blockchain ETFs, So What?
With the recent failure to get cryptocurrency Exchange-Traded Funds (ETFs) up and trading, the Nasdaq has listed ETFs this week by two companies that have shifted their focus to building portfolios of publicly listed companies with their hands in blockchain technology.
On its face, this might seem like exciting news for blockchain and crypto enthusiasts looking to get some investment exposure in the technology. However, anyone reading the headlines should temper their expectations upon a deeper look.
What are They?
BLOK is an actively managed portfolio run by the company Amplify ETFs. Under Amplify’s original registration statement prospectus with the Securities and Exchange Commision (SEC), the ETF was originally going to be called Amplify Blockchain Leaders ETF.
However, with good reason, the SEC was cautious to allow the fund to be listed with blockchain in its name over fear of having its stock price increase exponentially. Thus, Amplify settled on the name “Amplify Transformational Data Sharing ETF.” Since BLOK is actively managed, as opposed to its counterpart BLCN, the fund claims that this style of management will allow the fund to actively respond in real-time to blockchain related events and news such as IPOs, acquisitions, partnerships and strategic announcements, which could have an impact on the valuations of companies in the blockchain space. Amplify defines BLOK as a portfolio of “publicly-traded global equities actively involved in blockchain technology via investment, research or revenue creation.”
So, what are you buying if you decide to invest in the BLOK ETF? Well, many brand name tech companies that aren’t necessarily directly impacted all that much by blockchain technology. BLOK’s top holdings consist of giant tech companies such as IBM, Microsoft, Intel and NVIDIA, the e-commerce site Overstock.com, a payment processor Square, and the banking conglomerates Citigroup and Goldman Sachs.
Of those listed, only a few actually have heavy investments in blockchain. The two leaders being IBM, which has a department of 1,500 employees dedicated to blockchain technology, and Overstock.com, which is quickly transitioning from an e-commerce to a blockchain Bitcoin company. That is not to say that these companies can’t indirectly benefit from the developments of blockchain and the growing popularity of cryptocurrencies.
For example, NVIDIA’s stock price has increased by over 400% in the last 2 years because of the strong demand for its graphics processor units (GPUs). NVIDIA’s GPUs are among the most popular computer chips used by cryptocurrency miners who are looking to get rich and act as nodes for blockchain networks such as bitcoin. In fact, all of the holdings of BLOK do in some capacity have exposure to blockchain – although some are slight. However, any investor wanting to gain real exposure to the technology should look elsewhere, because the ETF resembles something more of a tech ETF, with some random payment processors and banks thrown in the mix, than an actual blockchain ETF.
Unfortunately, BLCN hasn’t distinguished itself from BLOK and a real blockchain ETF. BLCN is a passively managed ETF from the company Reality Shares ETF. Reality ran into similar trouble with the word blockchain being in its original name, Reality Shares NASDAQ Economy ETF, in its registration statement prospectus with the SEC. Reality settled on the name “Reality Shares Nasdaq NextGen Economy ETF.” Unlike its counterpart BLOK, BLCN is a passive index tracked ETF that will track an index, similar to the S&P 500, on the NASDAQ and will not be actively managed. The holdings in the index are very similar to the current holdings of BLOK, and features names such as IBM, Overstock.com, Intel, Microsoft, and NVIDIA. This leaves investors without real hard blockchain exposure.
Even though the two new ETFs aren’t exactly what blockchain enthusiasts were hoping for in terms of gaining easy access and a more diversified exposure to companies that are specifically focused on blockchain tech, it is a good start for those looking to perhaps dip their toes in the water of the blockchain world. However, it still remains that, outside of investing in the Bitcoin Investment Trust from Grayscale traded under the ticker GBTC, purchasing bitcoin and other cryptocurrencies outright on Coinbase or a purely crypto exchange like Bittrex or Binance is the only way to get a true exposure to blockchain and the crypto economic world.
Cryptos Rally Slightly
Following one of the worst crypto crashes since 2015, cryptocurrencies posted moderate recoveries.
Editor’s Remarks: Bitcoin dipped into four-figure territory at the nadir of the short-lived crash that many touted as the “end of cryptocurrencies”. However, most major currencies were up yesterday as they commenced a recovery. Ripple, which fell as low as $0.90, was up to $1.40 by midday, while NEO resumed its upward trend. Bitcoin’s recovery has been notably weaker than its smaller cousins, some of whom are up 60% in the last 24 hours against bitcoin. Ethereum gained back some of the ground it lost too and is settling in once more above the $1,000 mark.
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Crypto Carnage: Blood on the Dance Floor
It is said that ‘Blue Monday’, typically the third Monday of January, is the most depressing day of the year. This has, undoubtedly, been the case for cryptocurrency owners worldwide; from Monday onwards, almost all of the world’s major cryptocurrencies have seen a drastic slump in their prices.
Having reached the $14,000 mark last week, Monday onwards marked a severe fall in Bitcoin’s value. On Wednesday, the dubbed ‘king of cryptocurrencies’ dropped to below $10,000 for the first time since the end of November, before making a small recovery on Thursday. It stands at $11,500 at the time of writing, but the day is still young.
And Bitcoin has only been leading the way. At this point last week, the price of Ethereum, the second most valuable cryptocurrency, was approximately $1,200; a slump on Monday saw it fall to a low of $800 on Wednesday before pushing through the $1,000 threshold again, and reaching $1,030 a day later.
Ripple’s XRP also followed suit; the cryptocurrency has almost halved in value over the past week – from around the $2 mark to a low of $1.20 on Tuesday. Since then, it has marginally recovered in price, to $1.48 at the time of writing.
Monero, IOTA and Cardano were also impacted – since Monday, they have declined in price by 35%, 22% and 21%, respectively. Litecoin now sits at $195, down from $240 at the beginning of the week.
The crash occurred at a time of optimism and hope for cryptocurrency owners. Just earlier this week, US money transfer company MoneyGram announced a partnership with Ripple in the aim of streamlining money transfers. Yesterday also marked the expiration of the first Bitcoin futures contract that had been listed by the CBOE.
Still, China’s offensive rhetoric against Bitcoin and other cryptocurrencies in the last seven days is likely to have stoked fears amongst investors, causing a major sell-off. The country confirmed earlier this week that it was seeking to further clamp down on its restrictions against virtual currencies by eliminating cryptocurrency trading.
It has also recently announced plans to further restrict Bitcoin mining within the country. Recent statements coming from Chinese governmental circles could go as far as to suggest that China wants to eliminate cryptocurrencies outright: the People’s Bank of China (PBoC) vice governor, Pan Gongsheng, purportedly encouraged the state to introduce a total ban on cryptocurrencies.
China is by no means the only country to have espoused hostility toward cryptocurrencies. Russia also partially echoed China’s scepticism – President Vladimir Putin noted this week that “in broad terms, legislative regulation will be definitely required in future”.
South Korea’s unreceptive stance toward digital coins – it was reported earlier this week that its finance minister, Kim Dong-yeon, had stated that the government would be introducing measures to clamp down on the “irrational” cryptocurrency investment rage – may have also played a part in driving prices down.
Still, for every bear, there seems to be a bull. Time shall tell whether increasing restrictions on cryptocurrencies from different governments will further impinge on their price, or if they will find a way to adapt to the new obstacles and prove all those championing them (and making millions in the process) right.
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