Thursday, September 3, 2020

Blockchain Bites: Bitcoin's Steep Sell-Off, Pornhub's Crypto Payments and the Latest Twitter Hack

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September 3, 2020
By Daniel Kuhn
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Top shelf

Pornhub will accept BTC and LTC payments, a nonprofit is calling upon Coinbase to be more transparent and credit default swaps are coming to the Ethereum blockchain. 

Porn payments
Pornhub, the popular adult entertainment site, has added bitcoin (BTC) and litecoin (LTC) payment options for its Pornhub Premium product. The company is an example of legal, though untraditional, online businesses struggling with centralized payment processors: PayPal has blocked payments to the site without explanation, CoinDesk’s EU News Editor Daniel Palmer reports. The company has accepted verge (XVG) since 2018, and has recently added support for dollar-linked stablecoin tether (USDT). 

Crypto for taxes
People and businesses in the Swiss canton of Zug, home to "Crypto Valley," will be able to pay their taxes in bitcoin (BTC) or ether (ETH) beginning next February. Authorities have partnered with the Zug-based crypto broker and custodian Bitcoin Suisse, which will convert cryptocurrency payments into Swiss francs and hand them over to the tax office. The canton will accept tax payments up to 100,000 CHF (around $109,000) in those cryptos, though no partial payment will be accepted. In a statement Thursday, Zug Finance Director Heinz Tannler said the move would help to normalize the use of cryptocurrencies in everyday life.

Another Twitter hack
Prime Minister Narendra Modi of India has become the latest victim of a Twitter hack meant to siphon cryptocurrency from unsuspecting users. A Twitter account of Modi's personal website known as the Prime Minister’s National Relief Fund (PMNRF) was hacked and began soliciting 2.5 million followers to donate to the relief fund using cryptocurrency, the Nikkei Asian Review reported and Twitter confirmed. The social media giant is "not aware of additional accounts being impacted," a Twitter representative said. Modi’s hack follows a high-profile breach that compromised several accounts, including those of U.S. Democratic Presidential nominee Joe Biden, Tesla's Elon Musk, Kanye West and CoinDesk. The alleged perpetrators of that attack have been apprehended.

Full disclosure
The Electronic Frontier Foundation (EFF) is calling upon Coinbase to release regular transparency reports related to the government and law enforcement requests for information it receives. In a Wednesday blog post, the digital advocacy nonprofit said financial data is one of the "most sensitive types of information" a user produces. The way Coinbase responds to government requests could "have a huge impact on what types of speech thrive online,” CoinDesk’s Sebastian Sinclair reports. In June, Coinbase initiated procurement deals with the Drug Enforcement Administration and the Internal Revenue Service (IRS), for its investigations tool called “Coinbase Analytics,” which traces transactions conducted across the exchange ecosystem. 

COVID-19 relief
The Congressional Blockchain Caucus is urging President Donald Trump and other federal officials to adopt blockchain solutions to boost COVID-19 relief efforts. In a Wednesday letter, lawmakers said blockchain technology can help identify and authenticate individuals set to receive government benefits, streamline supply chains and create a registry of medical professionals. They further cited blockchain’s strong encryption mechanism that protects sensitive data. The U.S. government’s response to a pandemic has been a case study in governmental inefficiency, with states duking it out over critical supplies. Last April, 11 representatives signed a letter calling on the U.S Treasury Department to consider blockchain and distributed ledger technologies (DLT) in streamlining the distribution of stimulus funds to citizens across the nation.

Quick bites

At stake

Tether financialization
Credit default swaps (CDS), known for their role in the 2008 recession, have come to the Ethereum blockchain. Derivatives exchange Opium has introduced CDS for the dollar-linked stablecoin tether (USDT), providing insurance to buyers in case Tether, the issuer of the stablecoin, defaults. 

Tether, a key component of the crypto marketplace and fifth largest cryptocurrency by market capitalization, claims a 1-to-1 backing with U.S. dollars. This is often contested.

Tether revealed in April 2019 that only 74% of USDT was backed by “cash and cash equivalents.” The firm later said USDT was once again fully backed in a November 2019 retort to an academic paper that blamed the stablecoin for the 2017 bitcoin bubble. 

Further, the firm behind the stablecoin is under investigation by the New York Attorney General’s office for alleged misappropriation of funds.

Opium’s CDS product finally lets the controversial crypto’s critics and defenders “put their money where their mouths are,” CoinDesk’s Will Foxley reports. 

A CDS is a “transfer of the insurance from people who know and are confident to people who’d like to be insured. Derivatives are just about transferring the risk. Some people would like to have the risk and get paid, some people would like to pay to get rid of risk,” Opium founder Andrey Belyakov said.

The new CDS tethered to USDT can be customized to pay out under different scenarios, such as the stablecoin falling under a preset value, said Aave founder Stani Kulechov, who is advising Opium.

In this case, a sharp drop in USDT’s price from the usual $1 is used as a proxy for Tether turning out to be insolvent. So if the token fell to 70 cents, the writer of the contract would pay the buyer 30 cents at maturity.

Investors don’t need to hold USDT to purchase this coverage. They can use CDS to bet against the asset, while those who trust Tether to honor its obligations can earn a premium for standing ready to cover defaults.

Paolo Ardoino, chief technology officer at Tether, said through a spokesman: “Tether is solvent. Therefore, this solution is not really interesting to us or our community.”

Market intel

Steep pullback
Bitcoin (BTC) pulled back about $403 to $10,838 early Thursday, deepening a two-day sell-off that pushed the largest cryptocurrency to its lowest point in a month. CoinDesk’s Omkar Godbole previously reported an influx of 92,000 BTC on Wednesday – the biggest-single day rise in 37 days – could deepen bitcoin’s descent. "Inflows surged as people rushed to sell at near $12,000," Philip Gradwell, chief economist at Chainalysis, tweeted early Thursday. There’s evidence exchanges have not fully absorbed this selloff, hinting at a lack of buyers, which could lead to a profound drop in price. 

Ether options
Ether option contracts listed on Deribit, the largest crypto options exchange, rose to a record high of $507 million on Tuesday. This is possibly due to yield farming, the act of putting crypto holdings to work on decentralized applications to earn more crypto, Godbole reports. Open positions in ether options have surged by 45% from $349 million to $507 million over the past five days and nearly doubled since the end of July, while the total value locked (TVL) in the DeFi applications has surged by over 20% to $8.65 billion in the past five days. 



First Mover
First Mover starts your day with the most up-to-date sentiment around crypto markets, which of course never close, putting in context every wild swing in bitcoin and more. They follow the money so you don’t have to. You can subscribe here.

Tech pod

Hypothetical attack
A recently disclosed vulnerability in popular Trezor and KeepKey hardware wallets would have allowed attackers to hold users’ cryptocurrency for ransom without going anywhere near the device, CoinDesk’s Colin Harper reports. ShiftCrypto, the Swiss company that manufactures the BitBox hardware wallet, has disclosed a potential man-in-the middle ransom attack vector that leverages the two wallet’s optional passphrase feature users can use to unlock their device in lieu of a PIN. Trezor has issued a patch, KeepKey has delayed taking action, though it has not been suggested the hypothetical attack has been carried out. 



Live Webinar: What to Expect When Phase 0 Launches
Ethereum, the world's second-largest cryptocurrency by market capitalization, is expected to undergo a radical system-wide upgrade to improve network scalability and efficiency this by early next year. Join CoinDesk Research on Sept. 10 at 1:30 p.m. ET for a live discussion as we examine the potential market impacts of the launch of what’s known as Ethereum 2.0. 

Due to its sheer complexity, Ethereum 2.0 will be rolled out in several phases starting with Phase 0. Don’t miss the opportunity to understand the risks, benefits and predictions for the next phase of this technology.

Op-ed

DeFi, meet CeFi.
Author of “The Business Blockchain,” William Mougayar thinks centralized finance and decentralized finance should link up for each other's benefit. “CeFi” will bring users and expertise to DeFi – which will struggle to grow beyond its pen of hardcore users – but must begin thinking like wholesalers and hurry to “pick the DeFi products they want to build on top of,” he writes. “The CeFi market potential is staring DeFi in the face. If CeFi exchanges want to start looking more like full-service financial services institutions, they need to become DeFi’s best distribution channels.”

Podcast corner

Policy shift?
Luke Gromen, founder of the Forest for the Trees consulting firm, joins The Breakdown to discuss his thoughts on Jerome Powell’s Jackson Hole address last week. Is this really a change in policy?

Who won #CryptoTwitter?

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