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Quick Take

  • Online sports betting banned
  • BIS writes a decent paper
  • Davos attendees prefer blockchain to Bitcoin

Online Sports Betting Banned

The US has finally made all forms of online gambling that involve interstate transactions fully illegal, in accordance with the Wire Act of 1961. Specifically, the ruling specifies:

The ruling will not affect online gambling in which the wagers are placed from within a state’s borders, however this suggests casinos will have to have both a physical presence and a secure system in place to ensure that no bets originate from outside of the state. It’s unknown at this time how the industry will navigate that issue in a way that satisfies the revised federal regulations.

While Bitcoin-based grey market gambling sites (e.g. Nitrogen) have existed since Bitcoin’s launch, the ruling does make cryptocurrency enthusiasts wonder whether this ruling can serve as a catalyst for adoption for more uncensorable alternatives like Augur. Going into the year, I was fairly bullish on Augur, noting:

I suspect it will be the breakout dApp of 2019 … My bullishness is due to (1) a full year elapsing with a working product (2) improved UX/choice of clients (3) increased brand awareness (4) demand in the market for a non-custodial prediction market (5) stable-coin integration and (6) better market-making and liquidity provisioning.

I was most skeptical that sports wagers would find their way to Augur given many viable alternatives. Augur seemed best positioned to capture a share of prop bets with its killer improvement giving the users the ability to create arbitrary markets. Noting some of the difficulties in historical adoption, some of this has already been alleviated with the launch of products like Veil (see The Block’s Steven Zheng’s exclusive interview with the team).

It’s no secret that dApps have yet to see significant user traction —notional value of interest on Augur is still < $2m. One of the many reasons for this is because outside of international settlement and value transfer, there are few users that need a product badly enough to overcome many of the frictions in usability.

It’s also unclear how this sort of regulation affects operators like Augur: after all, the team is US-based, public, and active on social media. While the project originally had a kill-switch built in, it was destroyed a few weeks after launch.

While the team behind Augur would argue that they simply offer a protocol and don’t endorse any markets created on the platform, it’s no secret that wagering on sports, political events, etc. without fearing arrest is one of the major draws. Indeed, the largest markets on Augur are focused on political events and cryptocurrency speculation.

To this day, the Augur site contains a PGP-signed message, and as of today, it still reads:

As of January 2nd, 2019, the Forecast Foundation has not been contacted by any agency anywhere in the world in a way which requires that contact not to be disclosed. The Forecast Foundation will publicly disclose any sort of inquiry from government agencies that falls outside the scope of regular business operations.

It will be interesting to see how this develops. We’ll be closely watching open interest over the coming months.

The BIS Finally Writes a Decent Paper 

The Bank for International Settlements (BIS) has come out with another paper, this time focusing on a critique of Bitcoin’s Proof of Work consensus. The Block’s Larry Cermak offers a summary:

Auer argues that Satoshi’s updating process has two limitations: (1) proof-of-work axiomatically requires high transaction costs to ensure payment finality (2) the system cannot generate transaction fees in line with the goal of guaranteeing payment security.

This line of thinking isn’t new—in fact, it’s been historically debated amongst the Bitcoin community, serving as one of several arguments against the proposal to increase block size. Bitcoin security is derived from two sources: the block reward (new issuance) that comes out every 10 minutes and the transaction fees that miners collect. Given Bitcoin’s fixed supply and every-four-year halvenings, the block reward eventually runs out, forcing all security to be provided for by sufficiently high transaction fees.

With this in mind, there are two dominant paradigms that emerged. The first, primarily explored by the Bitcoin Cash community, is focused on an unbounded block size that could include enough transactions to make up for potentially low fees in volume. The second, Bitcoin’s current design, is focused on a limited block size that limits the number of transactions in each block, increasing the average transaction fee to sufficiently high levels that a satisfactory threshold is reached.

While many people worry about the potential for high fees to affect usability of the network, Bitcoiners are optimistic that most Bitcoin use will move off chain (to protocols like the Lightning Network) before the block reward runs out. In this vision for the future, the base Bitcoin chain will primarily be used for extremely large transactions (where additional security is needed and paid for), e.g. inter-bank settlement.

While the answers to these questions have remained unclear for a long time, they’ve been hotly debated in the community.

Elites Prefer Blockchain to Bitcoin 

In comments that are totally unsurprising, the private jet trotting attendees at Davos have indicated they still don’t understand Bitcoin, with comments like:

Jeff Schumacher, founder of BCG Digital Ventures, said during a panel in Davos: “I do believe [bitcoin] will go to zero. I think it’s a great technology but I don’t believe it’s a currency. It’s not based on anything.”

I wonder if anyone has told Jeff that virtually all currencies are faith-based. This isn’t new—just one of many comments in a long list of historical comments that critics have made about the use of blockchains-as-currency, with Silver Lake co-founder Glen Hutchins expanding:

“I am much less interested in investing around bitcoin as a currency unit or a currency equivalent, or even the blockchain as an accounting ledger. I am thinking much more about the protocols. In other words, what is the underlying protocol going to do as a consequence of which, which tokens are valuable or not,” Hutchins said.

Ignoring that the quote is mostly nonsensical, these are the types of high-level conversations people are having about blockchain technology at Davos. What else could you expect with a group of establishment elites who only have a 50,000 foot view of what’s possible?

Other Stuff Happened

  • Cboe has withdrawn the VanEck Bitcoin ETF, much to the chagrin of cryptocurrency enthusiasts who were optimistic a government shutdown meant they’d have no choice but to accept it.
  • Bithumb, a Korean exchange more well-known for 2017’s “kimchi premium” and allegations of wash trading is pursuing a US public listing via reverse takeover (RTO) in a move similar to Galaxy Digital’s maneuver in Canada.
  • Anchorage, a custody platform backed by a16z, Khosla Ventures, and others has finally come out of stealth after over a year as custody margins have compressed across the board. It will be interesting to see their differentiation in a crowded field.

 

 

 

Image credit: Shutterstock/Everett Collection

(Excerpt) Read more Here | 2019-01-23 22:00:46

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