R3 Partners With Dutch Tech Company to Pilot Blockchain-Based Digital IDs

R3 consortium and Dutch digital security company Gemalto have partnered to pilot a blockchain-based digital ID solution.

Blockchain consortium R3 has deployed a digital ID application developed by Dutch digital security company Gemalto on the latest version of the Corda Platform, according to an announcement published September 18.

Corda is an open-source blockchain-powered platform developed for financial establishments by R3 in collaboration with more than 200 of its partners. The platform is geared to work within finance to operate massive transactional volumes and restrict access to transaction data.

The parties expect to conduct several pilots of the application — called the Trust ID Network —  that will reportedly be launched later this year.

Per the announcement, Trust ID Network enables digital service providers to operate “fully verified and secured” user personal data by creating a Digital ID. Consumers can register within various banking, e-commerce and e-government services while avoiding repeated due diligence procedures in each instance.

The integration of Trust ID Network will reportedly allow users to control their data through a mobile app dubbed ID Wallet, where they can enter, certify, and share their personal information with specific service providers. Bertrand Knopf, EVP of Banking and Payment for Gemalto, explained:

“Trust ID Network solves the profound weaknesses of traditional, ‘siloed’ identity frameworks: the clumsy user experience, rising costs and difficulties in complying with stricter regulations… Financial institutions are best-placed to lead this self-sovereign identity revolution, but it will prove similarly attractive to a wide array of other service providers.”

In July, R3 released a “version” of its Corda blockchain platform aimed specifically at businesses. The new version of the platform is reportedly “optimized to meet the demands of modern day businesses,” and includes a “Blockchain Application Firewall” to enable the platform operate within corporate data centers and still communicate with Corda’s nodes.

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Crypto Future of E-Commerce Is in the Hands of Asian Players

Ovestock.com now allows users to buy crypto, but that’s not the main news.

On Sept. 14, the blockchain investment arm of United States-based e-commerce Bitcoin pioneer Overstock announced that the retailer’s clients can now purchase the cryptocurrency directly from its website. It became possible after its subsidiary Bitsy began a beta launch of its cryptocurrency wallet and exchange, marking another step in Overstock’s rich relationship with Bitcoin.

However, although Overstock first allowed its customers to pay with the cryptocurrency back in 2014, the e-commerce industry has yet to experience mass adoption. Meanwhile, Asian players are gathering to make an even greater push.

First brick in the wall: Overstock’s initial success

In January 2014, Overstock, an online retailer led by a “scourge of Wall Street” and crypto enthusiast Patrick Byrne, became the first large stock company to accept Bitcoin. As Byrne recalls in an interview with Business Insider:

“We were the first. The largest company accepting Bitcoin then was a $800,000 a year restaurant diner in Western Australia. We stepped up and started taking it — we were $1.4 billion. So I like to think we saved that community about five years in their adoption cycle.”

Curiously, the pioneering transition for Bitcoin’s integration into mainstream e-commerce was somewhat accidental: In December 2013, Byrne mentioned to a journalist that his company might start accepting Bitcoin. “I said it off the top of my head,” Byrne later admitted. Soon after the interview, media outlets from all over the world started to report on Overstock’s potential move. That provoked Byrne to swiftly contact San Francisco-based crypto exchange and wallet Coinbase, and, in a matter of few weeks, they jointly introduced the Bitcoin payment option on Overstock.

The initial payoff was worth it. “The implementation pays for itself a hundred times just by the press,” Byrne claims. The cryptocurrency community turned up to show their support: “Bitcoin users started to come to our site and buying a set of pillows or a bed just to show their support. We sold few hundred thousand just in two days after getting live.”

Interestingly, Overstock shares have trended significantly close to BTC price ever since Byrne joined part of the crypto crowd. For instance, Overstock’s stock rose four times between July and December of 2017, as Bitcoin grew more than sevenfold, and closed the year with an approximate gain of 200 percent. However, such reliance on Bitcoin has worked both ways for the company. In September, when Byrne had to sell 10 percent of his equity in the company in order to reinvest the proceeds in two investment projects and satisfy tax obligations, he wrote in a letter to investors:  

“I am disappointed that when the deadline arrived for my sales this quarter, the stock had dropped (I sadly note that over the last 180 days the correlation between OSTK’s and Bitcoin’s daily movements has been 85.5 percent, and again warn people: We don’t have significant holdings of Bitcoin).”

Nevertheless, Byrne continues to rely on cryptocurrency and blockchain in his business. Most crypto-related projects are carried out by venture capital firm Medici Ventures. It was established within Overstock in 2014 to use the company’s money to invest in blockchain projects. Another Overstock blockchain subsidiary, tZERO, has plans to launch an ICO trading platform. It has already secured major institutional investments from Hong Kong-based private equity firm GSR Capital.

Most recently, in September, Medici Ventures announced that its investment choice, Bitsy, had begun a limited launch of its cryptocurrency wallet and exchange. Due to the new integration, customers of Overstock received the option to purchase Bitcoin directly from the website.

“Integrating with Bitsy will allow Overstock to take the next step in its cryptocurrency journey by allowing the company to offer Bitcoin for sale directly from the retail website,” Byrne stated in the press release.

First wave: Shopify, Expedia and other U.S.-based businesses

Even before Overstock, there were smaller online retailers paving the way for crypto. Back in 2013, a Canada-based e-commerce platform for online stores and retail point-of-sale systems called Shopify announced a Bitcoin payment option for its sellers. Back then it had a base of over 70,000 online stores. 

Introduced via a collaboration with BitPay service, the feature could be activated upon contacting Shopify’s team. BitPay is a global Bitcoin payment service provider headquartered in Atlanta. It was founded in May 2011 to provide mobile checkout services to companies that wanted to accept Bitcoin.

“Due to the fact that it’s a very new feature and not something we’re ready to roll out to all stores just yet, you will need to contact me to have it enabled, and I may want to follow up with you for your feedback once you’ve been using it for a while, but it works,” its representative Brian Alkerton wrote on Nov. 9, 2013.

In July 2014, Shopify expanded its crypto integration by announcing a partnership with Coinbase: “Coinbase offers a two-click checkout experience and simple refunds that make accepting Bitcoin payments easy and convenient. All Shopify merchants can currently use Coinbase to accept Bitcoin and anyone with a U.S. bank account can convert their Bitcoin to USD.”

The users could now choose between the two service providers, who offered slightly different pricing models: BitPay reportedly charged a one percent transaction fee on casual sales and a zero percent fee for monthly subscribers at the time, while Coinbase charged zero percent standard transaction fees on up to $1 million in processing.

Additionally, Shopify website mentions that “unlike processing credit cards, Bitcoin payments have low to no fees,” while frauds and chargebacks are allegedly non-existent due to the nature of blockchain. Moreover, the e-commerce platforms lists fast international payments and no Payment Card Industry (PSI) compliance as other other benefits for using cryptocurrencies on their platform. Shopify has not released any statistics on how often cryptocurrencies are used in their transactions. However, in 2014, after the first full year with crypto payment option, it reportedly earned $105 million in revenue, twice as much as it raised the year before.

In November 2013, Calabasas-based company CheapAir became the first online travel agency in the world to accept Bitcoin as a form of payment for flight tickets. To introduce the option, CheapAir teamed up with Coinbase.

“Bitcoin is really easy. You can do it in two clicks. It’s a much easier way to pay and it’s also much more secure,” CEO Jeff Klee stated in an interview with Fox at the time.

When answering if his company is concerned about Bitcoin’s volatility, Klee declared that they feel “pretty insulated”: “The airlines don’t [accept] Bitcoin yet, so we have to pay them in U.S. dollars. When the sale comes in, we take the Bitcoins, [and] exchange them almost right away.”

Moreover, Cheapair’s CEO stressed that Bitcoin might make the transaction between the company and customers cheaper, albeit on their end: “Consumers don’t know this, but there’s a three percent cost embedded into everything you buy. Bitcoin does not have those. The transaction fees are much lower.”

By February 2014, the travel agency added the option to pay for hotels with the cryptocurrency, which was also a first for the industry.

Relatively soon, one of Cheapair’s competitors followed its move. In June 2014, Expedia, a travel booking website owned by U.S.-based Expedia Group, joined the ranks of crypto-friendly businesses by announcing it would accept Bitcoin as a form of payment for hotel bookings, also via a partnership with Coinbase.

BitPay vs. Coinbase

Thus, U.S.-based retailers who chose to support Bitcoin have partnered up either with Coinbase or BitPay. Both of them have their specific benefits and shortcomings.

In 2017, BitPay reported processing more than $1 billion in Bitcoin payments. “We’ve already grown our payments dollar volume 328 percent year-over-year from 2016,” the processor claimed. “Altogether, BitPay’s merchants are receiving $110 million in Bitcoin payments per month.”

In order to increase the application’s reach and popularity, BitPay announced support for Bitcoin Cash (BCH) in December 2017. A couple of weeks later, the company confused the crypto community: First, BitPay announced it would raise its minimum transaction amount to $100. However, just two days later, the company backpedalled, setting the value back at $5.

In February 2018, a couple of years after securing its first customers among online retailers, Coinbase announced its further expansion into the world of e-commerce: The exchange and wallet service opened Coinbase Commerce, a service with the aim to assist more online retailers. It was reported that the new service could be integrated into a merchant’s checkout flow or added as a payment option on an e-commerce platform. Additionally, it supported Bitcoin, Bitcoin Cash, Ethereum and Litecoin. The company announced in the press release:

“Our mission at Coinbase is to create an open financial system, so we’ve designed this solution to serve merchants worldwide. Unlike previous merchant products we’ve offered, Coinbase Commerce is not a hosted service, so merchants have full control of their own digital currency.”

Around the same time, Coinbase upgraded its policy, reportedly suspending “custodial” solutions for merchants. Soon after the announcement, Cheapair’s CEO Jeff Klee issued an open letter to customers, where he argued that the new policy will make accepting BTC more difficult.

“Our intention at this point is to use BitPay as a processor [now]. We have had a great experience with them so far and our integration is largely complete. But our one giant concern is that Bitpay does not support ‘non-payment protocol wallets’ [wallets that aren’t BIP-70 compliant]. So if you do not have a compatible wallet, you would have to get one and use it as an intermediate stage for your Bitcoin payment,” Klee wrote.

Interestingly, the Coinbase move could also be the reason why Expedia quietly stopped accepting Bitcoin circa June 10 (Expedia later confirmed to Cointelegraph that their business stopped accepting Bitcoin).

Chinese approach: Blockchain over Bitcoin

Chinese online retailers have been more cautious to interact with cryptocurrencies, instead focusing on their underlying technology, blockchain, which echoes the local government’s politics.

Thus, in 2016, at a conference in Shanghai, Alipay — an online payment platform of the Chinese e-commerce titan Alibaba — announced it may develop a cloud service platform based on blockchain.

“The usage of the blockchain will grow with the transaction records stored in it,” Alibaba Group Vice President Gao Hongbing declared at the time.

In May 2018, Alibaba founder Jack Ma famously stressed blockchain’s importance, while noting that his team “does not care” about Bitcoin.

In the same speech, Ma stated that he strongly believes in blockchain’s potential to address issues of data privacy and security for society at all levels — governments, corporations and individuals — in an “era of big data.” He also stressed that security is a top priority for the e-commerce conglomerate.

In March, the concern came through with more blockchain-related news: Alibaba’s T-Mall e-commerce platform began adopting the technology for its cross-border supply chain via a partnership with logistics company Cainiao, as per local news agency Xinhua. The collaboration will reportedly use blockchain to track goods’ country of origin, method of shipping, arrival port and customs report details.

According to data published in late August by Chinese media outlet iPR daily, Alibaba has reached the top of a list that ranks entities by the number of blockchain-related patents filed to date; the e-commerce conglomerate has filed a staggering 90 blockchain patents, outracing even IBM.

But Alibaba is not the only Chinese e-commerce outlet looking to adopt blockchain. In August 2018, another local retail giant, JD, introduced its own blockchain plans, as it revealed its new Blockchain-as-a-Service (BaaS) platform — dubbed JD Blockchain Open Platform. The new tool aims to enable businesses to build, host and implement blockchain solutions without having to develop the technology from scratch. JD outlined a number of potential use cases for the platform:

“The technology can help companies streamline operational procedures such as tracking and tracing the movement of goods and charity donations, authenticity certification, property assessment, transaction settlements, digital copyrights and enhance productivity.”

The future belongs to international giants who are not afraid to step in

While U.S. e-commerce companies seem to be lagging behind after a promising start — with a number of players dropping alternative payment options altogether — international players appear to be much more ambitious.

In late August 2018, Daniel Shin, the founder of Ticket Monster (TMON), a major Korean mobile e-commerce marketplace which boasts a $4 billion in total sales, disclosed that he had raised $32 million from a number of investors — including Binance labs, OKEx and Huobi Capital — to build a stablecoin named Terra. According to Terra’s white paper, the protocol maintains a “stability reserve” made up of user deposits with rewards varied to ensure the system is over-reserved.

As Shin explained to TechCrunch, Terra’s goal is to offer a new payment option which would allow for the bypass of existing payment networks like Visa, who take their cuts in the process. The use of the token will be stimulated through special discounts.

Interestingly, Terra is off to a jumpstart, granted that the group backing the stablecoin, the Terra Alliance, includes e-commerce players as big as Woowa Brothers, Qoo10, Carousell, Pomelo and TIKI — combined, those companies make around $25 billion in sales. The token would be spendable at each of those services.

Similarly, Japan’s largest e-commerce company Rakuten, with a market capitalization of over $12.5 billion, announced plans to launch its own cryptocurrency as part of a new blockchain-based loyalty program earlier this year.

Called the Rakuten coin, the asset will allegedly serve as ‎a “borderless currency,” underlining Rakuten’s vision of differentiating itself from its online retail rivals, like Amazon, Alibaba or eBay. The company’s CEO Hiroshi Mikitani elaborated:

“Basically, our concept is to recreate the network of retailers and merchants. We do not want to disconnect [them from their customers] but function as a catalyst. That is our philosophy, how to empower society, not just provide more convenience.”

Additionally, in late August 2018, Rakuten revealed a 265 million yen ($2.4 million) deal to acquire domestic crypto exchange Everybody’s Bitcoin. The purchase will reportedly occur on Oct. 1. 

According to Rakuten, it has been “considering entry into the cryptocurrency exchange industry” as it believes “the role of cryptocurrency-based payments in e-commerce, offline retail and in p2p [peer-to-peer] payments will grow in the future.”

While the majority of crypto-friendly online retailers come from Asia, Latin America has been pushing for mass adoption: Via Varejo, one of the largest consumer electronics and home appliance retailers in Brazil, teamed up with blockchain payment service Airfox. Airfox is a mobile financial service launched in February 2018 in Boston, MA. Designed for emerging economies, it allows making fiat and blockchain payments via its AirToken (AIR) coin, an ERC-20-based token.

Via Varejo is now integrating Airfox’s digital banking platform on its e-commerce platforms, as well as in nearly 1,000 of its offline shops. Customers will be able to purchase goods in Casa Bahia by paying directly via Airfox, or will be able to use microloans provided by the retail group.

The press release outlines the importance of the collaboration for the mass adoption of blockchain-powered payment services, letting the platform “extend its mobile digital wallet to Via Varejo’s national customer base and drive mainstream adoption.”

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Major Banks, Industry Players to Launch Blockchain-Based Commodities Platform

A joint Swiss-based venture made up of banks and industry players will oversee a new blockchain-based platform for financing commodity trading.

A group of major global banks, trading firms, and a leading energy company have launched a joint venture that will oversee a new blockchain-based platform for financing the trading of commodities, Reuters reports September 19.

The Swiss-based venture, dubbed komgo SA, has been established by a host of international financing, trading, and production institutions that include ABN AMRO, BNP Paribas, Citi, Credit Agricole Group, Gunvor, ING, Koch Supply & Trading, Macquarie, Mercuria, MUFG Bank, Natixis, Rabobank, Shell, SGS, and Societe Generale.

The venture will digitalize trade and commodities finance processes through a blockchain-based open platform, and has been developed in partnership with the Ethereum-focused blockchain infrastructure and solutions group ConsenSys.

The core development team supporting komgo is responsible for two reportedly successful blockchain based proofs-of-concept (PoC) that have been tested for energy and soft commodities trading, dubbed “Easy Trading Connect 1” and “Easy Trading Connect 2.”

According to a press release also published today from Dutch bank ABN AMRO:

“The first [komgo product] will standardize and facilitate the know-your-customer [KYC] process. The second […] will be a digital letter of credit, allowing commodity houses or other platforms to submit digital trade data and documents to the komgo customer banks of their choice.”

Reuters reports that komgo, which is set to go live later this year, will initially be used for the energy industry, specifically for trades that involve crude cargoes in the North Sea.

As of next year, the platform reportedly aims to widen to agriculture and metals. Vakt, a blockchain-powered oil trading platform that shares many of its shareholders with komgo, is said to be working alongside the new venture.

In April, a subsidiary of one of China’s four major state-owned oil companies successfully completed a shipment of gasoline from China to Singapore that used blockchain tech end-to-end across “all the key participants in the commodity trading process.”

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Upbit Crypto Exchange Operator to Open Singapore-Based Crypto Exchange Next Month

Kakao-affiliate Dunamu, the operator of major South Korean crypto exchange Upbit, plans to open a Singapore-based exchange next month.

Kakao-affiliate Dunamu, the operator of major South Korean crypto exchange Upbit, plans to open a Singapore-based exchange next month, local news outlet Yonhap News reports September 19.

According to Yonhap, Dunamu already set up a branch in Singapore this February as part of its active push to expand across the Asian market. While the exact date of the Singapore exchange launch remains to be finalized, the firm told Yonhap that the service will go live as of early October.

Kim Kook-hyun, head of Upbit’s existing Singapore branch, is quoted as saying that:

“As Singapore has proactively supported blockchain technology, our advancement into the nation will help us secure many chances to lead a variety of relevant projects and to have global competitiveness.”  

Upbit has seen a surge in trading volumes, which are up 53.6 percent on the day, according to CoinMarketCap. As of press time, the exchange is ranked the 10th largest crypto exchange globally, seeing around $241 million in trades over the 24 hours to press time.

As previously reported, Kakao’s recent Semiannual Report has shown that Upbit defied the bearish global crypto markets to post a $100 million profit in the third quarter of 2018.

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Korea Customs Service Partners with Samsung SDS to Build Blockchain Customs Platform

Samsung SDS will develop a blockchain platform for the Korean customs service to fight customs fraud and forged documents.

The Korea Customs Service has signed an agreement with Samsung SDS to deploy blockchain technology for its customs clearance system, according to a press release published September 14.

Samsung SDS, the IT arm of electronics giant Samsung, will develop a blockchain-powered platform based on Nexledger, which will be used for export customs logistics services. Nexledger is a blockchain platform designed to provide an integrated solution to businesses looking to reduce expenses while managing digital financial transactions and data exchange.

The new product is reportedly aimed at organizations active in export operations, enabling them to streamline and secure document sharing at each stage, from customs declarations of the exported goods to the delivery, in addition to detecting and preventing the use of forged documents.

Along with the Korea Customs Service, forty-eight different organizations, including public agencies, shipping, and insurance companies have also entered the agreement.

The upcoming platform is not the first blockchain-powered logistics project developed by Samsung SDS. In June, the company revealed the Cello 3.0 platform, which will combine artificial intelligence (AI) technology and the company’s “logistics knowhow.”

In August, Samsung SDS announced the launch of BankSign, a blockchain-based certification tool for banks and a joint project with the Korea Federation of Banks. BankSign reportedly enables customers to acquire a certification that is valid for up to three years, replacing the existing certificate system, which requires annual renewal and registration and authentication with each individual bank.

U.S. Customs and Border Protection is also looking to adopt blockchain for its shipment tracking system. The agency announced in August that it will launch a live test of the system, the results of which will define how blockchain is able to enhance the verification process of certificates of origin from partners of the North American Free Trade Agreement and the Central America Free Trade Agreement.

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IBM Joins Decentralized ‘Yellow Pages’ for Blockchain Projects

IBM has become a founding member in a decentralized cross-blockchain registry for blockchain projects.

IBM has joined a decentralized cross-blockchain registry initiative which it states is a Yellow Pages analogue for blockchain projects, according to an announcement September 13.

The initiative called Unbounded Registry will be led by blockchain startup HACERA, and is designed to provide “a decentralized means to register, look up, join and transact across a variety of blockchain solutions, built to interoperate with all of today’s distributed ledger technologies.”

The project will reportedly address major issues in the field, including reserved naming for blockchain projects, the discoverability of blockchain networks and applications, and a catalogue of domain-specific functions and services.

Other members of the registry include Intel, Chinese tech giant Huawei, Batavia, Hitachi, and the Australian Blockchain Association.

IBM is known for its openness to the study and application of blockchain technology across various fields. Earlier this month, the tech giant revealed a Stellar-based “near-real-time” blockchain payment network called Blockchain World Wire (BWW). The solution is developed to facilitate international settlements between banks.

In August, IBM and Danish transport and logistics giant Maersk jointly launched their global blockchain-enabled shipping solution. The platform is reportedly able to track critical data about each shipment in a supply chain in real time, generating a distributed, immutable record on the fly.

In June, IBM iX, the business and tech consulting wing of IBM, in partnership with software supplier Mediaocean, launched a blockchain-powered tracker for digital media transactions to “clean things up” in the media buying industry.

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Brazilian Retail Giant Partners With Blockchain Payment Service Airfox to ‘Drive Adoption’

Brazilian retail giant integrates blockchain-powered payment service on e-commerce platforms and in nearly 1,000 of its stores.

Brazilian retail giant Via Varejo has partnered with blockchain payment service Airfox, according to a September 12 press release.

Via Varejo, which owns home appliance and furniture chain Casa Bahia, is integrating Airfox’s digital banking platform on its e-commerce platforms, as well as in nearly 1,000 of its offline shops.

As the press release notes, customers will be able to purchase goods in Casa Bahia by paying directly via Airfox, or will be able to use microloans provided by the retail group. Customers can also reportedly use the app for personal finance, such as depositing and withdrawing cash, at the chain’s location.  

Airfox is a mobile financial service launched in February 2018 that includes fiat and blockchain payments via its AirToken (AIR) coin, an ERC-20 based token.

The press release outlines the importance of the collaboration for mass adoption of blockchain-powered payment services, letting the Airfox “extend its mobile digital wallet to Via Varejo’s national customer base and drive mainstream adoption.”

Via Varejo is one of the largest consumer electronics and home appliance retailers in Brazil, reaching 60 million customers in Brazil via its brands Casas Bahia and Pontofrio. The company owns over 900 stores in 350 Brazilian cities, reportedly making as much as 1 million deliveries per month.

According to the recent press-release, Via Varejo handled approximately $6.3 billion sales in 2017.

Last week, U.S. luxury automobile retailer Post Oak Motor Cars became reportedly the first Rolls-Royce, Bentley and Bugatti dealership in the country to accept Bitcoin (BTC) and Bitcoin Cash (BCH) as payment.

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From PoS to dBFT: A Brief Review of Consensus Protocols

Pros and cons of every major PoS challenger.

In our Expert Takes, opinion leaders from inside and outside the crypto industry express their views, share their experience and give professional advice. Expert Takes cover everything from blockchain technology and ICO funding to taxation, regulation and cryptocurrency adoption by different sectors of the economy.

If you would like to contribute an Expert Take, please email your ideas and CV to george@cointelegraph.com.

Although the blockchain and crypto communities remain united around the ideology of blockchain and its world-changing potential, there is still one issue which proves to be as divisive as a hard fork — consensus protocols. Although proof-of-work (PoW) is still the protocol of choice for Bitcoin and many others, the debate rages over proof-of-stake (PoS), along with other emerging consensus protocols.

Proof-of-work (PoW)

The granddaddy of consensus protocols and the brainchild of Satoshi, the proof-of-work protocol involves block miners solving complex cryptographic puzzles, for which they receive rewards in the form of coins or tokens.

Pros

As the original protocol, PoW has proven its resilience against internal and external attacks.

Cons

PoW comes under fire for several reasons. It is highly energy intensive, with some estimates putting the Bitcoin network power consumption at the same level as 159 countries. Critics of Bitcoin such as Andrew Tayo have pointed out that much of this energy is wasted, as only one miner can eventually mine each block, regardless how many participate in the race to get there first.

Bitcoin is now mostly mined using ASICs, so mining is dominated by big operations such as Bitmain, which can afford the hardware needed to mine at scale. This concentrates mining power into the hands of the few, leading some in the community to call Bitcoin a centralized currency. Although some crypto tokens such as Vertcoin attempt to remain ASIC-resistant by regularly changing algorithms, it is a race to stay ahead of the ASIC manufacturers.

Adoption

Bitcoin, Litecoin, Zcash and Ethereum Classic, among others — PoW is still the most popular consensus protocol.

Proof-of-stake (PoS)

PoS

PoS was first conceived as a way of avoiding the well-known issues with PoW, such as energy consumption. In the PoS model, those holding coins can stake them on the likelihood of the next block being the correct one. If it is, they receive rewards. If someone stakes coins on a block that turns out to contain fraudulent transactions, they will be ‘fined’ the value of their stake.

Pros

PoS consumes less energy than PoW. PoS also actively penalizes dishonesty, deterring fraudulent behavior among validators.

Cons

As the validating nodes are not contributing computational power — known as the “nothing-at-stake” problem — there is an increased risk that PoS blockchains could see more forks than in PoW. Additionally, PoS favors those with the most coins, which also promotes centralization as the richer holders can stake more. For PoS coin NXT, it has been shown how one holder could steadily increase their stake to the point that they would own more than 90% of coins.

Adoption

Projects using a pure PoS algorithm are Reddcoin, Decred and NavCoin. The problems with PoW algorithms are what has led Ethereum to move away from pure PoW and adopt Casper, a PoW/PoS hybrid.

PoW vs. PoS

Due to market domination by Bitcoin and Ethereum, the debate around consensus protocols often seems to center around PoW and PoS. In fact, they share similar problems, as indicated by Jordan Earls, co-founder and lead developer at Qtum:

“The real dichotomy in the discourse of mining algorithms seems to come from the whole centralization vs. decentralization debate rather than if one should choose PoS or PoW. ASIC resistance has proven to be as stated, only resistant. This aspect has helped to incentivize the centralization of mining, leading some PoW networks to periodically change their mining algorithm in order to defeat this. In PoS networks, the case is similar, where some networks choose consensus mechanisms that have a technological limit on the number of validators, in hopes to offer greater transaction throughput.”

However, we must remember that this is not a strict dichotomy — PoW and PoS are not the only consensus models. So what are some of the other options?

Delegated PoS (dPoS)

dPoS

Delegated PoS was invented by Daniel Larimer, co-founder of Steem and CTO of EOS, which both use dPoS. Here, the network votes for ‘Witnesses,’ who reach the consensus to add the next block. Similar to the standard PoS model, the voting weight of network participants is determined by the number of network tokens they hold.

Pros

dPoS increases latency, as fewer parties to a consensus speeds up decision making. By avoiding the use of ASICs, it promotes decentralization — but with some caveats, as outlined below.  

Cons

The use of ‘Witnesses’ means that full decentralization is never achieved. Consider the difference between a full democracy — all citizens voting on all matters — and a representative democracy, where delegates are elected to speak on behalf of the electorate.

Vitalik Buterin wrote a criticism of dPOS, describing how this consensus protocol can lead to plutocracy, with influential voters forming groups that could ultimately end in a malicious attack. Larimer responded in sharp defense with his own blog post titled “The Limits of Crypto-Economic Governance”:

“Vitalik is looking for a crypto-economic blackbox that assumes you cannot rely on voting whether by stake (plutocracy) or by individual (democracy).”

Larimer concluded with his view that consensus is the role of the network, and that “each community might have its own definition of ‘right and wrong,’ which can only be measured by a poll of the subjective opinions of community members.”

Adoption

dPoS is used in all of Dan Larimer’s projects — namely BitShares, Steem and EOS.

Proof-of-assignment (PoA)

Similarly to dPoS, the proof-of-assignment model establishes several trusted nodes within the network, but only those nodes store the entire ledger. By allowing other network contributors to participate without ledger storage, the proof-of-assignment model allows any network-enabled device operating on the Internet of Things (IoT) to mine tokens. Called ‘micro-mining,’ this process enables internet-connected household appliances to contribute to the computing power of a blockchain network.

Pros

By harnessing the computing power of a vaster network of machines, PoA can handle faster transaction speeds with a much-reduced energy consumption.

Cons

PoA is still in its infancy and needs to prove its resilience through the early phases until network adoption gains traction.

Adoption

Proof-of-assignment was developed by IOTW, a blockchain project aimed at bringing any internet-connected devices into the blockchain network. Fred Leung, founder and CEO of IOTW, explains:

“The end goal here, in order to create mass blockchain adoption, is to bring blockchain into every household. PoA and micro-mining will allow any connected device to mine without adding hardware cost. Common people will get the blockchain rewards and so they will learn about blockchain and cryptocurrency. PoA uses very little power, since it does not need to compute proof-of-work. Micro-mining, with witnessing protocol, will allow [a] significant less number of ledgers with the same number [of] verification nodes.”

Delegated Byzantine Fault Tolerance (dBFT)

Delegated Byzantine Fault Tolerance was developed by the NEO team to overcome the Byzantine Generals Problem. The system is comprised of nodes, delegates (who can approve the blocks), and a speaker (who proposes the next block). Various scenarios illustrate how the dBFT protocol is robust enough to protect against malicious actors within the network.

Pros

Malcolm Lerider, senior R&D manager at NEO had this to say about the dBFT protocol:

“dBFT is invented by NEO [previously called Antshares] and has proved to work well. It is a consensus algorithm developed with perfect finality, meaning that all transactions are 100 percent final after the first confirmation. The blockchain cannot fork with dBFT, and high-value chained transactions are trivial and executed much faster. It is built with regulatory and business use cases in mind.”

Cons

Vitalik makes the point that 100 percent finality is always probabilistic, at least philosophically. However, the NEO blockchain has yet to suffer any transaction reversal that contradicts its claim that its algorithm offers perfect finality.

Adoption

dBFT is used by NEO.

Blockchain, as a technology, is still very much under development. It is, therefore, a natural consequence that the issue of the ‘right’ consensus protocol is still under debate. Many of the critical considerations — such as the extent of decentralization — go to the core of the spirit of blockchain as a technology. At least for now, there is no consensus on the right consensus protocol.

Nikolai is a financial analyst and professional trader writing for Forbes, The Next Web and Investing.com. Based in Israel, he has been trading multiple markets and educating traders as a teacher and a mentor. Nikolai has extensive experience in stock market analysis, investment research and various assets such as cryptocurrencies, FX, commodities, equities and bonds.

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US: Blockchain Security Co. BitGo Gets Regulator’s Green Light to Become Crypto Custodian

American crypto security startup BitGo has received a state trust company charter from the South Dakota Division of Banking, making it a qualified custodian for crypto.

American crypto wallet and blockchain security firm BitGo has received a state trust company charter from the South Dakota Division of Banking, making it a qualified custodian for crypto, CNBC reports September 13.

By creating its trust company, California-based BitGo will now be subject to regulatory scrutiny that encompasses know-your-customer (KYC) and anti-money-laundering (AML) checks and the filing of financial audits and monthly disclosures.

As it launches its regulated crypto custody offering, BitGo co-founder and CEO Mike Belshe told CNBC that:

“This is the missing piece for infrastructure — it’s a treacherous environment today. Hedge funds need it, family offices need it, they can’t participate in digital currency until they have a place to store it that’s regulated.”

As previously reported, the narrative that custody is one of the chief remaining obstacles for the crypto market to “mature” and draw institutional investment is widely shared. CNBC interviewed Monica Sommerville of consulting firm TABB Group, who noted that:

“Institutional investors are very interested in finding a solution, but they haven’t seen one that they think is perfect for various reasons. They still self-custody, and manage all their own keys.”

Somerville added that she worked with one family office who reportedly stores clients’ crypto in “baby carrot”-sized crypto hardware wallets organized in binders until “a better alternative” is found.

While individual retail investors have the relatively secure option of storing crypto themselves in offline cold storage, family offices and hedge funds are required by the U.S. Securities and Exchange Commission (SEC) to use a third-party regulated institution to safely store assets if they are worth over $150 million, as CNBC reports.

Alongside BitGo, this year has seen major U.S. wallet and exchange service provider Coinbase as well as Japan’s Nomura Bank launch their own custody solutions. As part of its forthcoming Bakkt offering, New York Stock Exchange (NYSE) operator ICE will also bring a new major trusted custodian solution to the crypto space.

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US: Blockchain Security Co. BitGo Gets Regulator’s Green Light to Become Crypto Custodian

American crypto security startup BitGo has received a state trust company charter from the South Dakota Division of Banking, making it a qualified custodian for crypto.

American crypto wallet and blockchain security firm BitGo has received a state trust company charter from the South Dakota Division of Banking, making it a qualified custodian for crypto, CNBC reports September 13.

By creating its trust company, California-based BitGo will now be subject to regulatory scrutiny that encompasses know-your-customer (KYC) and anti-money-laundering (AML) checks and the filing of financial audits and monthly disclosures.

As it launches its regulated crypto custody offering, BitGo co-founder and CEO Mike Belshe told CNBC that:

“This is the missing piece for infrastructure — it’s a treacherous environment today. Hedge funds need it, family offices need it, they can’t participate in digital currency until they have a place to store it that’s regulated.”

As previously reported, the narrative that custody is one of the chief remaining obstacles for the crypto market to “mature” and draw institutional investment is widely shared. CNBC interviewed Monica Sommerville of consulting firm TABB Group, who noted that:

“Institutional investors are very interested in finding a solution, but they haven’t seen one that they think is perfect for various reasons. They still self-custody, and manage all their own keys.”

Somerville added that she worked with one family office who reportedly stores clients’ crypto in “baby carrot”-sized crypto hardware wallets organized in binders until “a better alternative” is found.

While individual retail investors have the relatively secure option of storing crypto themselves in offline cold storage, family offices and hedge funds are required by the U.S. Securities and Exchange Commission (SEC) to use a third-party regulated institution to safely store assets if they are worth over $150 million, as CNBC reports.

Alongside BitGo, this year has seen major U.S. wallet and exchange service provider Coinbase as well as Japan’s Nomura Bank launch their own custody solutions. As part of its forthcoming Bakkt offering, New York Stock Exchange (NYSE) operator ICE will also bring a new major trusted custodian solution to the crypto space.

Continue Reading