Blockchain Bites: Bitcoin Miners’ Slim Margins, ConsenSys’ Latest CBDC Pilot, a16z’s Power Hire

Bitcoin’s hashrate is soaring. Ethereum incubator ConsenSys has signed on to another CBDC pilot. JPMorgan unveiled a revamped interbank transfer blockchain network that could challenge SWIFT.

Top shelf

Lower profits
Bitcoin mining profitability is at all-time lows in 2020, spurred in part by new ASIC mining machinery driving up the network’s hashrate. While bitcoin‘s hashrate has taken a dip as China’s wet season comes to an end, mining professionals predict this will only be temporary, and it has only improved profit margins so much, CoinDesk’s Colin Harper reports. According to North American Bitcoin mining company Luxor’s hashprice index, miners are extracting $0.096 for every terahash they produce, down from the roughly $1.40 miners could expect to make three years ago. 

ConsenSys CBDCs
ConsenSys will work with Societe Generale – Forge, the bank’s digital assets arm, in a central bank digital currency (CBDC) pilot. The Ethereum incubator will explore the limits of CBDC issuance and management, delivery versus payment and cross-chain interoperability, CoinDesk’s Daniel Palmer reports. Societe Generale – Forge has previously issued bonds worth millions of euros over a blockchain, with one of the initiatives being in collaboration with France’s central bank. ConsenSys was chosen in September to work with the Hong Kong Monetary Authority on a different CBDC pilot.

GBTC whales
BlockFi has taken a 5% share of Grayscale’s $4.8 billion bitcoin trust. According to Tuesday Securities and Exchange Commission (SEC) filings, reviewed by CoinDesk’s Danny Nelson, the crypto lender now holds 24,235,578 GBTC shares. CEO Zac Prince said in a press statement BlockFi’s “significant” GBTC position will “add value” to the “marketplace for liquid and illiquid” shares. Crypto fund manager Three Arrows Capital is the only other entity with comparable GBTC holdings, having amassed over 21 million shares – some 6.26% of GBTC at the time – by June. (Grayscale and CoinDesk are both wholly owned by Digital Currency Group.)

Banking blockchain
JPMorgan is inviting 400-plus financial institutions (including 25 of the largest 50 banks) to start building on top its revamped blockchain network, Liink. Designed to connect banks in a peer-to-peer fashion and help them remove the pain points from cross-border payments, the closed source Liink is more of a “decentralized network” and less like a “central command product,” Christine Moy, head of Liink, told CoinDesk’s Ian Allison. “Think of it as the foundation of an enterprise mainnet.” The interbank transfer system is aimed as a complement of – but could be a killer to – SWIFT. 

Power hire
The one-time New York State finance regulator who shepherded the state’s BitLicense through its early days will join tech ventures fund Andreessen Horowitz (a16z) to focus on cryptocurrency companies. An a16z blog post said the fund’s new chief regulatory officer, Anthony Albanese, will focus on crypto portfolio companies in “gaming, digital storage, payment systems, social media, creative marketplaces and more.” “We’re seeing so much happening in the frontier areas like DeFi and stablecoins but also among the legacy financial services institutions from PayPal to JPMorgan,” said Katie Haun, an a16z general partner. “He’s really the perfect addition at the perfect time.”

Quick bites

• MicroStrategy is looking to add to its $521 million stash of bitcoin, the company’s president said Tuesday. The company has already seen a 22% return on its initial BTC buy. (CoinDesk)
• Australia’s largest stock exchange operator, ASX Ltd., has delayed the rollout of its blockchain-based trading platform until April 2023. Surging pandemic-led trading volumes would strain the in-development platform, it said. (CoinDesk)
• U.S. President Donald Trump’s campaign website was briefly compromised on Tuesday, as hackers looked to fleece cryptocurrency from unsuspecting supporters in the final days before the 2020 election. (CoinDesk)
• Malta, once a hub for crypto company registrations, has approved its first regulated crypto public offering: VAIOT, a blockchain and AI-powered services business. Decrypt asks whether Malta’s Initial Virtual Financial Assets Offering (IVFAO) is the new ICO.
• Messari explores how “DeFi Citadels” create and capture value. “The core of this business model is a protocol’s balance sheet, which can be defined as [total value locked]...” (paywalled)

At stake

Personhood proof
Yesterday, Paula Berman, a co-founder of Democracy Earth, and Divya Siddarth, a researcher at Microsoft’s Office of the CTO, published an essay in CoinDesk detailing an answer to a long-standing question in internet development: How do you know you’re not talking to a dog on the internet? 

Explaining the concept of “proof-of-personhood,” the authors aim to outline a new model of consensus that authenticate digital identities, using actual human traits. 

Currently, authentication systems rely on algorithms or third party credentials – often provided by centralized firms like Facebook or Twitter – to provide a layer of trust. As we’ve seen by the rise of disinformation and scams, it’s shaky at best.

Further, because the current systems of identity rely on the disclosure of personal and private information to an identifier, it opens our lives to a degree of surveillance never before possible. 

“Identity is one of our most fundamental human rights. Yet, in the age of surveillance, commodification and centralization it is under threat,” they write.

Their solution, proof-of-personhood, explained for the first time as part of CoinDesk’s Internet 2030 series, outlines ways to form identities around subjective, rather than objective, metrics. “Instead of being generated and solved by computation, they are created and unlocked exclusively by the distinctive cognitive abilities of human brains,” they write.

In turn, rather than having the web as a field of exploitation, by matching real-world identities to digital ones, in ways that preserves privacy and human dignity, will “foster prosocial, community-oriented behavior, where both users and applications are significantly limited in their ability to exploit and attack each other.”

The authors also go into the areas where blockchains and other decentralized tools, as well as AI, have already failed to meet this need. If you’re interested in the idea of digital utopias, I suggest you read the entire article. 

Market intel

Overbought bitcoin?
A key indicator shows bitcoin’s recent rally is not overstretched. The “market value to realized value” (MVRV) Z-score – a measure used to assess undervalued and overvalued conditions – is showing bitcoin at lower levels than one would expect, if this were a market top, CoinDesk’s Omkar Godbole reports. Hovering at two-year highs at 2.12, bitcoin is still well below the 7.0 score at which an asset is considered overbought. “Put simply, the cryptocurrency is slightly overvalued but still has plenty of room to extend the run of gains from the low of $3,867 seen since mid-March,” Godbole writes.

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