Cryptocurrency

DeFi as a solution in times of crisis

Published

1 week ago

September 14, 2023

The 2020s have been a challenging decade so far, yet the transformative power of blockchain technology offers a better path forward.

Born from crisis

Around the globe, times are tough for many everyday people. Increases in cost of living minimized any growth in wages last year as inflation continues to take its toll. Additionally, world powers such as China and Russia are increasingly challenging the dominance of the USD as geopolitical tensions flare up.

In this precarious new world, decentralized cryptocurrencies can potentially be a source of stability and freedom. Bitcoin first emerged in the wake of the 2008 banking crisis and the impact of events like the Lehman Brothers collapse is evident in the writings of Bitcoin’s pseudonymous creator Satoshi Nakamoto.

While the subprime mortgage crisis was in full swing in February 2009, Nakamoto proposed an “e-currency based on cryptographic proof” that enables secure and effortless transactions without the need for a trusted third-party middleman. But has crypto lived up to its promise so far, and can DeFi help solve the ongoing instability of the 2020s?

A better system is possible

Cryptocurrencies like Bitcoin indeed help overcome issues with the current banking and monetary system in several different ways. For example, self-custody of DeFi assets protects individual investors against risks like institutional insolvency and bank runs. The collapse of Silicon Valley Bank in March 2023 shows that even large banks are still vulnerable to failure. But instead of requiring trust that their money is still there, Web3 users can verify their holdings directly on chain.

Additionally, blockchain technology allows for a more efficient and decentralized financial landscape. The peer-to-peer network pioneered by Bitcoin means that investors can hold their own assets and transact directly with no middlemen and significantly lower fees. And unlike with traditional banks, the rise of DeFi sectors like DEXs, lending and liquid staking means individuals can now have full control over exactly how their deposited assets are used.

Inflation is yet another ongoing problem that crypto and DeFi help solve. Unlike fiat currencies, cryptocurrencies like bitcoin have a fixed total supply. This means that your holdings in BTC cannot be easily diluted like if you hold a currency such as USD. While a return to the gold standard of years past is sometimes proposed as a potential solution to inflation, adopting crypto as legal tender would have a similar effect while also delivering a range of other benefits like enhanced efficiency.

CBDCs: A potential alternative?

As global superpowers battle for financial supremacy, everyday people around the world can benefit from decentralized and censorship-resistant assets like Bitcoin. Yet because cryptocurrencies pose a threat to the dominance of the current monetary system, many governments are taking measures to issue their own centralized digital currency.

Institutions such as the Federal Reserve and European Central Bank have been actively exploring the issuance of Central Bank Digital Currencies (CBDCs). In some ways, it is possible to equate the benefits of CBDCs with the utility of crypto. For example, a so-called digital dollar could help deliver faster and cheaper transactions while expanding access to the financial system.

However, CBDCs lack several of the key benefits of cryptocurrency. For one, they are still highly centralized like traditional fiat currencies. This means that true self-custody is not possible and your assets can be frozen by financial authorities at any time. CBDCs may also not help stem issues with inflation since they still allow central banks to print money through measures like quantitative easing. Overall, CBDCs only deliver a fraction of the benefits of decentralized cryptocurrencies.

Why not CEXs?

The Web3 community proposes a better alternative. With decentralized cryptocurrencies like Bitcoin, ordinary people can enjoy the benefits of digital money without facing the same problems that plague existing fiat currencies. Especially in times of crisis, DeFi is a great way to keep your money secure and under your direct control. Yet in order for DeFi to truly explode, the user experience needs to catch up with centralized finance.

Currently, the easiest way to buy and send crypto is with a centralized exchange (CEX). Like CBDCs, users of platforms like Coinbase and Binance must sacrifice some transparency and decentralization for a streamlined user experience. But events like the FTX collapse show centralized exchanges can become over-leveraged and insolvent just like traditional banks. Since many users are unaware of the advantages of DeFi and self custody, further education is key.

While writing down your seed phrase in a secure location is harder than quickly making an account on a CEX, the benefits are definitely worth it. When you have self custody, you can always track your assets directly on the blockchain and even move your funds to a hardware wallet for extra security. Plus, investors can make solid passive income on their investments at the same time with low-volatility DeFi strategies such as stablecoin farming.

DeFi could be the answer

In addition to continued instability within our financial system, the 2020s have also featured a heightened level of geopolitical turmoil. However, decentralized finance offers the chance to safeguard our financial freedom. We must stand up together to build a fair digital economy and a better fiscal world. While DeFi already offers a range of revolutionary opportunities for small investors, the community needs to keep pushing for more applications, improved education and a better user experience in order to achieve worldwide mass adoption.

Bitcoin helped pioneer this new era, but the future envisioned by Satoshi Nakamoto requires our continued efforts. Once the mainstream population can access DeFi as easily as walking into a traditional brick and mortar bank, the sky is the limit for Web3 adoption. In the meantime, it’s important to maintain a critical lens about the potential downsides of CEXs and government attempts to replace crypto with their own watered-down digital currencies.

The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.

Wolfgang Rückerl is the CEO of Istari Vision and Entity.global. His expertise is in Web3 startups, DeFi and GameFi.

This article was published through Cointelegraph Innovation Circle, a vetted organization of senior executives and experts in the blockchain technology industry who are building the future through the power of connections, collaboration and thought leadership. Opinions expressed do not necessarily reflect those of Cointelegraph.

Cryptocurrency

Coinbase holds 5% of all Bitcoin in existence: Data

Published

5 hours ago

September 23, 2023

Blockchain intelligence platform Arkham recently identified that crypto exchange Coinbase holds almost 1 million Bitcoin (BTC) in its wallets. The coins are worth more than $25 billion at current market prices for BTC.

According to Arkham, the exchange’s holdings amount to almost 5% of all existing Bitcoin. Arkham said that Coinbase holds a total of 947,755 BTC. At the moment, Bitcoin’s circulating supply is around 19,493,537, according to coin information website CoinGecko.

Arkham has now identified $25B of Coinbase Bitcoin reserves (~1M BTC) on chain.
This makes Coinbase the largest Bitcoin entity in the world on Arkham, with almost 5% of all BTC in existence – about as much as Satoshi Nakamoto. pic.twitter.com/7sDOczS7WT
— Arkham (@ArkhamIntel) September 22, 2023

Furthermore, Arkham also noted that it tagged and identified 36 million Bitcoin deposit and holding addresses used by the exchange. According to Arkham, Coinbase’s largest cold wallet holds around 10,000 BTC. Based on the exchange’s financial reports, the intelligence company believes that Coinbase has more Bitcoin that are not yet labeled and could not be identified.

While Coinbase holds over $25 billion in BTC in its wallets, the exchange only owns around 10,000 of all the Bitcoin it holds, which is worth roughly $200 million, according to recent data.

Meanwhile, community members expressed varying reactions to the news about the amount of Bitcoin the centralized exchange holds. Some believe it’s a sign to withdraw their BTC from exchanges, warning holders not to wait until exchanges start to halt withdrawals. Others say that since there are legitimate concerns over cold wallets, there’s no good way to store their assets.

When it comes to Bitcoin ownership by companies, business intelligence firm MicroStrategy still owns the most BTC. In earnings results posted on Aug. 1, the firm’s co-founder Michael Saylor declared that the company owns 152,800 BTC, worth over $4 billion at the time of writing.

Magazine: How to protect your crypto in a volatile market: Bitcoin OGs and experts weigh in

Cryptocurrency

Coinbase CEO warns against AI regulation, calls for decentralization

Published

5 hours ago

September 23, 2023

Brian Armstrong, the CEO of crypto exchange Coinbase, expressed his stance on artificial intelligence (AI) regulation in a recent post on the social media platform X (formerly Twitter).

On Sept. 23, Armstrong explained that he believes that AI should not be regulated. According to the Coinbase CEO, the AI space needs to develop as soon as possible because of reasons such as national security. In addition, Armstrong also noted that despite the best intentions of regulators, regulation “has unintended consequences,” arguing that it kills innovation and competition.

Count me as someone who believes AI should not be regulated
We need to make progress on it as fast as possible for many reasons (including national security). And the track record on regulation is that it has unintended consequences and kills competition/innovation, despite best…
— Brian Armstrong ️ (@brian_armstrong) September 22, 2023

The Coinbase executive cited the internet as an example. Armstrong believes there was a “golden age of innovation” on the internet and software because it was not regulated. The Coinbase CEO suggested the same should be applied to AI technology.

Furthermore, Armstrong also presented an alternative to regulation in terms of protecting the AI space. According to the executive, it would be better to “decentralize it and open source it to let the cat out of the bag.”

Meanwhile, various jurisdictions across the globe have either started to regulate AI or express concerns about its potential effects. On Aug. 15, China’s provisional guidelines for AI activity and management came into effect. The regulations were published on July 10 and were a joint effort between six of the country’s government agencies. This is the first set of AI rules implemented within the country amid the recent AI boom.

In the United Kingdom, the competition regulator studied AI in order to identify its potential impact on competition and consumers. On Sept. 18, the U.K.’s Competition and Markets Authority concluded that while AI has the potential to change people’s work and lives, the changes may happen too fast and could have a significant impact on competition.

Magazine: ‘AI has killed the industry’: EasyTranslate boss on adapting to change

Cryptocurrency

Bitcoin miners double down on efficiency and renewable energy at the World Digital Mining Summit

Published

5 hours ago

September 23, 2023

Bitmain rolled out its next-generation Antminer S21 and S21 Hydro ASIC miners at the World Digital Mining Summit (WDMS) in Hong Kong on Sept. 22, revealing the crucial performance stats the entire industry has been waiting for. The S21 has a hash rate of 200 terahashes per second (TH/s) and an efficiency of 17.5 joules per terahash (J/T), while the S21 hydro hashes at 335 TH/s and 16 J/T, which is notable given that until recently, most Bitcoin ASICS were operating above the 20 J/T level.

With electricity costs continuing to rise year-over-year and the Bitcoin halving projected to occur in April 2024, ASIC efficiency is quickly becoming the paramount focus of miners, and many are also pivoting toward folding in renewable energy sources as a core component of their operations.

Bitcoin miners focus on efficiency and renewable energy

Sustainable development in the mining industry was a core theme discussed in a majority of the panels at the WDMS. In the opening roundtable, team members from Terrawulf, Core Scientific, CleanSpark and Iris Energy shared their perspectives on how further integration of renewable energy sources will become a critical strategy to implement for many miners after the April 2024 Bitcoin supply halving.

*Bitmain World Digital Mining Summit. Source: Cointelegraph*

According to Nazar Khan, Terrawulf’s chief operating officer:

“There’s a significant transition going on in the supply side of the generation process; there’s a concerted effort to decarbonize the entire supply stack, and so when we talk about Bitcoin miners consuming more renewable energy, that’s part of a broader theme that’s happening across the United States without Bitcoin mining as well. The role that we play is locating our Bitcoin mining loads in places where that’s happening and how do we facilitate that decarbonization process.“

One impact of the upcoming supply halving is that miners will maintain the same capital and operational costs, plus the need to pay down any revolving debts, while essentially seeing their block reward distribution cut in half.

For this reason, miners will either need to increase the percentage of their hash rate derived from sustainable energy sources or make efficiency adjustments to their ASIC fleet to maintain or increase their profitability.

Regarding the rollout of the Antminer XP 21 and its potential impact on the mining industry, BMC founder Justin Kramer said:

“The S21, if reliable, fairly priced and readily available — and yes, that’s a lot of ifs with Bitmain’s history — could revolutionize the crypto mining landscape with its efficiency. It is basically packing the power of two S19 100T miners into one unit. Despite this, the burgeoning aftermarket firmware market, coupled with hydro/immersion systems, give miners more tools to keep older generation miners, such as the S19, profitable also. Thus, while the S21 represents a notable advancement, it may not render sub 110 TH/s miners entirely obsolete.”

When asked about the more exciting aspects of the new S19 XP, Kramer noted that:

“I like that Bitmain is rewarding environmentally friendly mining farms with better pricing and advanced delivery with their new Carbon Neutral Certificate. But, I’ll add that, it was a little surprising when I noticed that both new S21 models offer 33% more hash rate (S21 200T versus 151T on S19j XP; S21 hydro is 335T versus the S19 XP Hydro at 257T). Is this a coincidence? I’m doubtful, and it likely signals more of the same systematic model releases from Bitmain where a slight tweak to the firmware and maybe a few other items that are adjusted results in a moderate increase in hash rate and a brand-new miner.”

Bitcoin is en route to becoming an ESG asset

A theme of the past few years has been an increase in Bitcoin miners and BTC advocates pushing back against the assertion that Bitcoin mining is bad for the environment, and that the industry’s reliance on carbon-based energy production accelerates emissions.

Countering this perspective, Hong Kong Sustaintech Foundation professor in accounting and finance, Haitian Lu, bluntly announced that:

“Bitcoin mining is promoting renewable energy adoption in many areas.”

Lu explained that “over the years, Bitcoin mining has become more efficient and is also using cleaner energy. History tells us that human development from an agricultural society to industrialization to the future of a digitalized economy goes with every increasing energy consumption per capita. What makes the difference is human’s ability to use renewable energy increases, thus achieving sustainable development.”

Like the perspectives shared by other panelists, Lu said that Bitcoin miners’ participation in demand response agreements with power producers and distributors leads to energy grid efficiency, and they “provide an economic incentive for the development of renewable energy “promotion and development of renewable energy projects.”

In addition to Bitcoin mining tapping into stranded energy, encouraging the development of renewable energy projects and helping to balance electric grids, the efficiency advancements of next-generation ASICs like the Antminer S21 reduce miners’ energy consumption while also allowing them to boost their profits.