Tuesday, October 1, 2019

Cypherpunk Holdings Inc Announces Appointment of Jon Matonis as Chief Economist

Press Release
Tuesday, February 13, 2019


Toronto, Ontario--(Newsfile Corp. - February 13, 2019) - Cypherpunk Holdings Inc (CSE: HODL) ("Cypherpunk" or the "Company") is pleased to announce that Jon Matonis has joined the company as Chief Economist.

Jon Matonis is a monetary economist with a particular focus on non-political digital currencies and privacy technologies. His career has included senior influential posts at VISA International, VeriSign, Sumitomo Bank and Hushmail. He was a founding director of the Bitcoin Foundation.

Commenting on his appointment, Matonis said, "The financing and support of privacy technologies is more important now than ever before in history. I am honored to join the team effort at Cypherpunk Holdings in funding those critical projects that not only should prevail, but that must prevail."
Cypherpunk interim CEO, Marc Henderson, said, "Jon Matonis is one of the foremost intellects in the blockchain, cryptocurrency and privacy technology sector. This appointment at such an early stage in the evolution of Cypherpunk Holdings shows the scope of what we are looking to achieve with this company. We are delighted that Jon is onboard with that. Things are starting to move forward, and we are very excited. We are hoping to make further announcements in the coming weeks."
Cypherpunk Holdings Inc is a Canadian-based holding vehicle set up to invest in companies, technologies and protocols, which enhance or protect privacy, as well as freedom and trust. Its strategy is to make targeted investments in and acquisitions of businesses and assets with strong privacy, often within the blockchain ecosystem, including select cryptocurrencies. The company believes privacy will be an increasingly strong narrative across the technology sector going forward.
The stated mission of Cypherpunk Holdings is "to become the world's leading privacy-focused investment vehicle." More details, and the latest company presentation, can be found at the company website: https://cypherpunkholdings.com/.
Jon Matonis is an economist and e-Money researcher. He serves as an independent board director to companies in the Bitcoin, the Blockchain, mobile payments, and gaming sectors. He has been a featured guest on CNN, CNBC, Bloomberg, NPR, Al Jazeera, RT, Virgin Radio, and numerous podcasts. As a prominent fintech columnist with Forbes Magazine, American Banker, and CoinDesk, he recently joined the editorial board for the cryptocurrency journal, Ledger. His early work on digital cash systems and financial cryptography has been published by Dow Jones and the London School of Economics.
Matonis advocates worldwide for Bitcoin to a wide variety of audiences, including members of the Federal Reserve Bank, the Bank of England, the European Central Bank, SWIFT, the US Department of Justice, retail payment networks, major financial institutions, financial regulatory bodies, mobile money issuers, iGaming operators, information security firms, hedge funds, gold investors, and family offices.
The Company has today granted a total of 900,000 options to purchase shares of the company at a price of $0.07 per share until June 1, 2023.
Following its recent name change to Cypherpunk Holdings, the Company's common shares trade on the Canadian Securities Exchange under the symbol "HODL". The new name references the important contribution of the Cypherpunks and the Cypherpunk Manifesto to the development and ultimate emergence of cryptocurrencies.
Cautionary Note Regarding Forward-Looking Information
This news release contains "forward-looking information" within the meaning of applicable securities laws. Generally, any statements that are not historical facts may contain forward-looking information, and forward-looking information can be identified by the use of forward-looking terminology such as "plans", "expects" or "does not expect", "is expected", "budget", "scheduled", "estimates", "forecasts", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or indicates that certain actions, events or results "may", "could", "would", "might" or "will be" taken, "occur" or "be achieved". Forward-looking information includes, but is not limited to the Company's goal of making investments in the blockchain and other sectors and enhancing value. There is no assurance that the Company's plans or objectives will be implemented as set out herein, or at all. Forward-looking information is based on certain factors and assumptions the Company believes to be reasonable at the time such statements are made and is subject to known and unknown risks, uncertainties and other factors that may cause the actual results, level of activity, performance or achievements of the Company to be materially different from those expressed or implied by such forward-looking information. There can be no assurance that such forward-looking information will prove to be accurate, as actual results and future events could differ materially from those anticipated in such information. Accordingly, readers should not place undue reliance on forward-looking information. Forward-looking statements are made based on management's beliefs, estimates and opinions on the date that statements are made and the Company undertakes no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change, except as required by law. Investors are cautioned against attributing undue certainty to forward-looking statements.
Investor Relations Contacts:
Marc Henderson
Cypherpunk Holdings Inc.
Interim President and Chief Executive Officer
Office: 416.599.8547

Thursday, September 19, 2019

Featured Articles and Writings of J. Orlin Grabbe

James Orlin Grabbe (/ˈɡreɪbiː/; October 8, 1947 – March 15, 2008) more commonly referred to as J. Orlin Grabbe, or just JOG, was an American economist and prolific writer with contributions in the theory and practice of finance. He was known by his book International Financial Markets, and for mathematical models for options and derivatives used in international finance and foreign exchange.

Grabbe wrote articles and essays about personal freedom and governmental abuse, and was an editor of Internet magazines such as the Laissez Faire City Times. Born and educated in the U.S., he pursued his business interests around the world. He died from heart failure around March 15, 2008 in San José, Costa Rica. [reprinted from the Wikipedia page of James Orlin Grabbe]


Featured articles and writings of J. Orlin Grabbe (archived):

Read this first for background:

Wikipedia Page of Digital Monetary Trust

Ambassador College and Harvard graduate, economist, physicist Orlin Grabbe dies:

Quantum Tantra obituary:

J. Orlin Grabbe Memorial Archive:


Cypherpunkd Episode 042: “Bitcoin Mania 4″ – The Social, Economic and Political Disruptive Technology of Bitcoin with Austrian School Economist Jon Matonis (I had the privilege of being interviewed by Hiro White of AgoristRadio.com):

Listen to the SoundCloud version:

Thursday, January 3, 2019

Original Email from Satoshi

Nakamoto Studies Institute
March 5, 2010


The following email from Satoshi was shared by Jon Matonis. Jon regretfully claims to have lost all other correspondences with Satoshi.

Monday, January 29, 2018

The Future of Digital Currency Exchanges

By Globitex
Friday, January 26, 2018


Board Chairman, Jon Matonis, and Managing Director, Liza Aizupiete, both co-founders of Globitex spoke at the Cryptoeconomy Conference in London on January 26, 2018. The following text summary was transcribed from audio:

Jon: I want to start off by saying something about the three functions of money. If anyone takes an Economics 101 class, the first thing you learn in monetary economics are the three functions of money. You have a store of value, a medium of exchange and unit of account. Those three functions are required for what economists refer to as a functionary monetary unit.

Now the confusion around it though is that they don’t all start at the same time. They don’t start with unit of account and go backwards, there is a specific sequence to these functions of money for it to evolve into a successful currency.

An example with Bitcoin was the first transaction, the famous pizza transaction which would be about a $79 to $80 million pizza right now. Actually it was two pepperoni pizzas. But that’s the current value of the Bitcoin that was exchanged for that transaction. It was a transaction from Florida to London.

The reason people take something in exchange as a medium of exchange is because they believe that it has value for them after they accept it. They may not want to hold it but they may want to exchange it obviously for something else. It starts with store of value which is the first state that you have to have for anything to evolve as money. Then it moves to a medium of exchange. It can’t happen the other way around because it doesn’t make any sense for people to accept it if they don’t think that it will have at least enough value for them to hold it and get rid of it.

Then the last function is a unit of account this is the final stage of money. This is when you see goods and services priced in the dominant fiat. So you go shopping in the store in the UK or Europe and on the shelves it will say pounds or euros, this is the unit of account. Bitcoin is not there, no cryptocurrency is there yet. This stage takes a long time to get to unit of account because the government with legal tender has such an advantage in this area through the requirement of paying taxes and so forth that it’s very difficult for a newcomer to break into the unit of account phase. When it happens though it will be a massive disruption.

People are already starting to price their services in Bitcoin, but because it is so volatile they usually price it in another currency and then through that currency they receive Bitcoin. So that’s not really a unit of account. But one of the things that will be required to achieve a unit of account is to have raw basic commodities priced and traded in the digital currency which is Bitcoin. This is one of the things that Globitex strives to achieve in this phase of its rollout, the trading pairs of Bitcoin and raw commodities. So gold, silver, industrial metals, crude oil, agricultural commodities, for example. This will start to set, at least at a wholesale level, set the framework and the basis for using cryptocurrencies as a unit of account which will complete the three functions of money.

I’m not just making this stuff up, you can go to a Bank of England report and they have the same diagram where you have the nested functions of money.

People always ask me what do I fear most about the Bitcoin economy? What keeps me up at night? If I’m such a believer I must have something that I fear. What do I think will kill Bitcoin? Something like regulation, do I fear regulations? OK none of those are things that I fear about Bitcoin. What I fear the most is what is actually happening in the gold market right now. And I fear that we will get to a point where the exchanges themselves are successful but we will have government-sponsored, state-sponsored trading where they will be able to suppress the price artificially because they have an unlimited supply of fiat.

There are a lot of people that believe the gold market today is suppressed — prices don’t reflect what would really be happening if it were a true check on central banking. This is possible because unlimited fiat can be used to do naked short selling on exchanges. The paper market for Bitcoin in the futures exchange can be manipulated through price suppression by making naked short selling. Naked short selling is where you sell the commodity without actually owning it. Exchanges allow this and it’s legal, you just have to have a certain amount of margin, the exchanges have to manage contract limits and they have to warehouse a certain amount for physical delivery.

Now what is the remedy for this though? This is what keeps me up at night. Eventually, I think the Bitcoin market will be manipulated in the same way that gold and silver markets are. The remedy to this is to have enough global exchanges, enough exchanges worldwide in different jurisdictions, and even some that may be jurisdictionless. It doesn’t matter if they are centralized or decentralized, what we need as a defense is to have enough of these so that a single country or a few leading governments can’t control a certain exchange. It’s very easy with gold because most of the gold, paper gold, is traded in New York so it’s very easy to suppress the price through one exchange that has the majority of the supply. With Bitcoin we don’t have the mature exchange market yet, but to the extent that we can get this globally we will be able to apply the remedy before the attack that I fear.

This happens to be one the feature of Globitex as well, I mean obviously we’re going to be one of those exchanges in that ecosystem, but we’re not going to be the only ones. We’re going to need several thousand exchanges in different jurisdictions. Leading to the other point that I wanted to make is, what is the next stage in all of this? So we have a functioning currency which is a store of value and a medium of exchange. We have exchanges that are spread out globally in various jurisdictions, what is the next part of the evolution? Well, this is what I hear from a lot of my client companies, is that they have no way to hedge the balance sheet risk that they’re currently holding.

There are a lot of companies that have Bitcoin and other cryptocurrencies on their balance sheets, the only way to hedge that is to sell it, sell it in the physical market, and remove the risk. They can sell it in the futures market now for the last month, but that’s the cash settlement market, not a physical settlement market. So it’s a little bit like the tail wagging the dog when you have cash settled market without the actual underlying thing being delivered. This allows them to at least reduce some of that balance sheet risk without having to sell the commodity. So it’s very helpful but still not 100% effective.

What I think is going to happen in this space is futures will lead to an options market where you have call option and put option, you’ll be able to pay a premium for a call option and a put option. And you’ll be able to protect the assets on your balance sheet for a known price. This happens all the time in other multicurrency corporations, they’re using derivatives to hedge that risk. At Globitex, the futures and options market is one of the planned phased rollouts, but physically settled. So they’re physically settled on the futures side.

The other thing is that when we get to that stage, and we’re already starting to see it, we start to see an interest rate market develop for Bitcoin, and Ethereum. The Bitcoin interest rate, does anyone want to take a guess at what the annual interest rate is for Bitcoin? It’s about 28–35% annually right now. It’s been as high as 350%.

The reason we know what the interest rate is because the short sellers have to borrow a Bitcoin in order to sell it. There’s an active two-way interest rate market for Bitcoin. You only borrow it for a day or a week, and the rates fluctuate between 28–35%. It’s very volatile so sometimes it goes over 35%. Now I have named that index Bibor, so it’s like Libor but it’s Libor for Bitcoin. So it’s a Bitcoin interbroker offered rate. That is going to be a product one day, and that product and that forwards curve, that interest-rate and the maturities schedules that come out of that are going to be used in capital finance for the crypto-economy. That’s why I love the name of this conference here because we’re building the early capital markets for a new currency. It can’t function any other way, it needs to have an interest rate.

So Globitex will also be market maker in that interest rate curve. So just like we have interest-rate futures now for the dollar, for the Euro, you’re looking at overnight, one week, 30 days those will be the maturities also for cryptocurrencies that are traded on crypto exchanges. And to give you more color around that and more details around that I want to introduce my co-founder at Globitex. She will do a close-up look at what Globitex is planning. We’ve just completed a successful private pre sale, so we are currently closed for any sales. So this won’t be a sales pitch, I want to welcome my co-founder Liza.

Liza: Thank you, my name is Liza Aizupiete. First I’m going to tell you a little more about what Globitex is, second, I’m going to present a case for and against a very popular notion of centralized versus decentralized exchanges. Then I’m going to talk about why we are here, and what actually got us started. And finally I’ll conclude with our actual token sale, which is basically looking into the future of what Globitex is planning to do.

So first of all Globitex is actually an institutional grade crypto-fiat exchange. Globitex was recently awarded an EU EMI license which is an unprecedented license in this space for cryptocurrency businesses, because it gives us the ability to actually act as our own bank for Euro payments across the SEPA payment system. Which means for Euro payments we actually don’t need to integrate with an intermediary bank, we will be able to issue our own IBAN accounts.

Next, we have the features of what actually makes Globitex special. Obviously we’re not the first-comers, we are quite the latecomers to the industry. But what actually makes us special is that we have a completely functional API which actually, to date it would be fair to say that none of exchanges have up to the level that we have developed. The FIX API gives you a direct market access. Obviously, we also support Rest API and web sockets. We are running a superior matching engine with over 1 million transactions per second capacity. If you are a market maker or a high-frequency trader, you will absolutely enjoy working on our exchange.

Now added to that, we are proudly touting our reporting tool. Something so basic that every broker and every exchange should have. And we have taken our time to actually develop it to a detail where you can pull something called the net asset value. Something not everybody understands or everybody needs, but if you’re an institutional broker, or accountant, you would definitely appreciate the ability to have a net asset value report on all trading activities. Our professional trading platform features a well designed GUI interface for day and night traders, and you can switch between night and day modes. You can also choose to move around the modules of the trading platform, so it’s very customizable.

Finally, obviously there’s a lot of security that has been worked into Globitex as a central custodian for cryptocurrencies. We have Bitcoin, Bitcoin cash, soon Ethereum and Litecoin wallets. And as I already mentioned we are EMI licensed, so it’s an amazing development, completely unprecedented in this space and we’ll be very proud to deliver on that and soon upon full integration with SEPA-MMS system.

Now here’s the case for and against centralized and decentralized exchanges. I totally agree with a decentralized monetary system because this is a thing. As for an exchange there is actually a difference. So here are the differences. For a decentralized exchange you still need to do a KYC/AML, in fact in Europe following the banking directive you will actually be forced or compelled to register and actually disclose your personal details. By disclosing your KYC you are submitting these details to a centralized service provider. Therefore by definition, even if the transactions take place off chain, identification is already a central point. Obviously for a centralized exchange, identification is disclosed and centralized, it’s a standard adhering to AML laws.

For volume, for decentralized exchanges you’re absolutely limited by the on-chain transaction capacity, which is around seven transactions per a second for Bitcoin. For Ethereum, in theory, maybe 15 to 30 per second on a good day but that’s it. So on-chain transactions on a decentralized exchange are very limited. Whereas for centralized exchanges it is unlimited, and as mentioned, Globitex supports over one million transactions per a second. Now, of course you are still able to exchange on a decentralized exchange, in a limited way, whereas on a centralized you can list so many things.

Globitex will be listing futures, options, all the various types of securities which cannot actually function on a decentralized exchange, it just doesn’t work, due to transaction speed limitations, impairing price discovery and liquidity. You need one centralized point of reference, one point where all of this is clearly listed, quickly executed and settled. And of course, you need several exchanges to do that, but these must be centralized.

As for use cases, obviously decentralized exchanges are going to be exclusively peer-to-peer, whereas for centralized exchanges enable global trade, hedgings, speculating, various types of investment. All of that is enabled by centralized exchanges. It is very biased of course because I am with a centralized exchange, Globitex is a centralized exchange and it cannot really be a decentralized exchange unless we solve the transaction speed per second issue. Maybe once we have streaming prices I think we can revisit that. And if the regulator is also on board with it perhaps one day it’s going to be all decentralized.

So this is just a very quick reminder of why we are all here, having listened to the presentations of this wonderful conference. I just thought that we need to take a look back and see why we’re all here. Obviously it’s because of Bitcoin, Bitcoin came about and basically changed pretty much everything. So just a couple of points, Bitcoin is a distributed completely decentralized network of payments. It doesn’t sleep on Saturdays or Sundays, like SWIFT or SEPA. The most important however is that in 2015 on October 22nd here in Europe, Bitcoin was actually defined as a currency. So on that date the European Court of Justice pronounced that Bitcoin should be exempt of VAT. Which means that it is effectively a means of payment and currency.

Now speaking of exchanges, which diversified further our development into becoming not only a spot cryptocurrency exchange, but actually go after the next license, which will enable us not only peer-to-peer lending, enabling interest rate futures, enabling commodity futures and token indices futures. We are going after a regulatory approval and system revamp in order to be able to actually become an exchange for securities trading, that’s huge.

So for our Globitex GBX ICO, the fact that cryptocurrencies are here to stay, this is our basic premise. Bitcoin or bitcoin protocol based crypto-economy scaling can be achieved by providing better market access and more diversified product offering. The liquidity issue can also be solved by developing cryptocurrency money markets to find an equilibrium between supply and demand. Because money, if you think about it, is also a thing with an inherent demand and supply. And only when and if there is enough of a possibility for that demand and supply to meet, only then would we truly see the relative value of that thing which in our case is cryptocurrency.

We believe that Globitex can be instrumental in scaling the cryptocurrency economy by listing standardised derivatives instruments in money markets and commodities with both cash settlement and physical delivery, with bitcoin or Bitcoin protocol-based cryptocurrencies as the unit of account.

Now we have seen various types of tokens and ours is going to be a utility token. Here’s the thing, you will be able to settle trades with the Globitex GBX token. And if you’re an owner of our token you’ll also participate in loyalty programs, which we envisage as market making activities. We would incentivize you to actually help us make market or provide liquidity by making that trade extremely profitable for you. When we list futures, from gold to crude oil futures and we need market makers to participate, we will be incentivizing you to use your tokens to provide market on these new listings. So it’s a utility token not only for you, but also for us, as an exchange. The token supply is limited, or calculated at a €10 million market hard cap. The redeemed tokens will be burned, and taken out of the circulation, therefore the Globitex GBX token is deflationary, limited in supply and therefore should be appreciating in value.

Sunday, July 23, 2017

No Governance for Old Men: Coordinating Protocol Upgrades in the Future

By Jon Matonis
Bitcoin Magazine
Friday, July 21, 2017


Let’s not deploy the nuclear option for every protocol upgrade.

Make no mistake. We are witnessing a high-stakes protocol standards battle play out in real time. And it is just as important as last century’s battle for the internet’s TCP standard.

Current capacity constraints on the Bitcoin blockchain have brought us to this impasse.

The Bitcoin protocol, as the dominant value transfer “network effect” leader, battles against upstart cryptocurrency protocols like Ethereum and Monero. But it also battles with itself as divergent forces push for either on-chain scaling or off-chain scaling, hard fork or soft fork, SegWit transaction format or original transaction format.

The so-called nuclear option is a prolonged, contested hard fork of the Bitcoin blockchain because it risks splitting the network into two competing chains, which is to no one’s benefit. Therefore, it should be reserved as a planned formality or a last resort for extreme situations rather than a perpetual form of “live” dispute resolution.

With so much individual and institutional wealth essentially stored on the Bitcoin blockchain, it can be extremely disconcerting when others try to “fork” around with your money. Chronic forking is not synonymous with wealth management and prudent capital accumulation, which require stability and predictability. Importantly, smart contracts and non-monetary applications will also rely upon relative stability since the same native digital token also facilitates the proof-of-work security model.

This article will examine how open-source governance was designed to work within the Bitcoin protocol and how users, miners and developers are locked in a symbiotic dance when it comes to potential forks to the immutable consensus. Solutions will be proposed and analyzed that maintain the decentralized nature of the resulting code and the blockchain consensus, while still permitting sensible protocol upgrades. Governance is not only about the particular method of change-control management, but also about how the very method itself is subject to change.

Open-Source Protocols and Bitcoin

Generally referred to as FOSS, or free and open-source software, this source code is openly shared so that people are encouraged to use the software and to voluntarily improve its design, resulting in decreasing software costs; increasing security and stability, and flexibility over hardware choice; and better privacy protection.

Open-source governance models, such as Linux and BitTorrent, are not new and they existed prior to the emergence of Bitcoin in early 2009; however, they have never before been so tightly intertwined with money itself. Indeed, as the largest distributed computing project in the world with self-adjusting computational power, Bitcoin may be the first crude instance of A.I. on the internet.

In “Who Controls the Blockchain?” Patrick Murck confirms that Bitcoin is functioning as designed:
As a blockchain community grows, it becomes increasingly more difficult for stakeholders to reach a consensus on changing network rules. This is by design, and reinforces the original principles of the blockchain’s creators. To change the rules is to split the network, creating a new blockchain and a new community. Blockchain networks resist political governance because they are governed by everyone who [participates] in them, and by no one in particular.
Murck continues:
Bitcoin’s ability to resist such populist campaigns demonstrates the success of the blockchain’s governance structure and shows that the ‘governance crisis’ is a false narrative.
Of course it’s a false narrative, and Murck is correct on this point. Bitcoin’s lack of political governance is Bitcoin’s governance model, and forking is a natural intended component of that. “Governance” may be the wrong word for it because we are actually talking about minimizing potential disruption.

Where Bitcoin differs from other open-source protocols is that two levels of forking exist. One level forks the open-source code (code fork), and another level forks the blockchain consensus (chain fork). Since there can only be one consensus per native digital token, chain splits are the natural result of this. The only way to avoid potential chain splits in the future is to restrict the change-control process to a single implementation, which is not very safe nor realistic.

“Collaborate or fork” has become the rallying cry for Bitcoin Core supporters. L.M. Goodman, author of “Tezos: A Self-Amending Crypto-Ledger Position Paper,” writes:
Core development teams are a potentially dangerous source of centralization.
When it comes to Bitcoin Core, the publicly shared code repository hosts the current reference implementation, and a small group of code committers (or maintainers) regulate any merges to the code. Even though other projects may be more open to criticism and newcomers, this general structure reminds me of a presiding council of elders.

Making hazy claims of a peer-review process or saying that committers are just passive maintainers merely creates the facade of decentralized code. The real peer-review process takes place on multiple community and technical forums, some of which are not even frequented by the developers and Bitcoin Core committers.

The BIP (Bitcoin Improvement Proposal) process is sufficient and it’s working for those who choose to collaborate on Bitcoin Core. Similar to the RFC (Request for Comments) process at the IETF, BIP debates about a proposed implementation can provide technical documentation useful to developers. However, it is not working for many involved in Bitcoin protocol development due to the advantages of incumbency and the false appeal to authority with core developers. If Bitcoin Core no longer maintains the leading reference implementation for the Bitcoin protocol, it will be 100 percent due to this intransigence.

Sensitive to the criticisms of glorifying Bitcoin Core, Adam Back of Blockstream recently proposed an option to freeze the base-layer protocol, but at the moment that will only move all of the politics and game-playing to what exactly the base-layer freeze should look like. It is a nice idea for separating the protocol standard from a single reference implementation and for transitioning the Bitcoin protocol to an IETF-like structure, although it’s extremely premature for now.

Therefore, by default, that leaves us with several alternative Bitcoin implementations in an environment of continual forking.

Even Satoshi Nakamoto was critical of multiple consensus implementations in 2010:
I don’t believe a second, compatible implementation of Bitcoin will ever be a good idea. So much of the design depends on all nodes getting exactly identical results in lockstep that a second implementation would be a menace to the network.
That prevailing standpoint, however, may be changing, which Aaron van Wirdum addresses in “The Long History and Disputed Desirability of Alternative Bitcoin Implementations.” Wirdum cites Eric Voskuil of libbitcoin, who argues that there should not be one particular implementation to define the Bitcoin protocol:
“All code that impacts consensus is part of consensus,” Voskuil told Bitcoin Magazine. “But when part of this code stops the network or does something not nice, it’s called a bug needing a fix, but that fix is a change to consensus. Since bugs are consensus, fixes are forks. As such, a single implementation gives far too much power to its developers. Shutting down the network while some star chamber works out a new consensus is downright authoritarian.”
Multiple alternative implementations of the Bitcoin protocol strengthen the network and help to prevent code centralization.

Politics of Blockchain Forking (or How UASF BIP 148 Will Fail)

Contentious hard forks and soft forks all come down to hashing power. You can phrase it differently and you can make believe that two-day zero-balance nodes have a fundamental say in the outcome, but you cannot alter that basic reality.

BIP 148 fork will undoubtedly need mining hash power to succeed or even to result in a minority chain. However, if Segregated Witness (SegWit) had sufficient miner support in the first place, the BIP 148 UASF itself would be unnecessary. So, in that respect, it will now proceed like a game of chicken waiting to see if miners support the fork attempt.

Mirroring aspects of mob rule, if the UASF approach works as a way to bring miners around to adopting SegWit, then the emboldened mob will deploy the tactic for numerous other protocol upgrades in the future. Consensus rules should not be easy to change and they should not be able to change through simple majority rule on nodes, economic or not. Eventually, these attempts will run headfirst into the wall of Nakamoto consensus.

As far as the network is concerned, it’s like turning off the power to your node.

UASF BIP148 Nodes (1st August 2017)

There is no room for majority rule in Bitcoin. Those who endorse the UASF approach and cleverly insert UASF tags in their social media handles are endorsing majority rule in Bitcoin. They are providing a stage for any random user group to push their warped agenda via tyranny of the nodes.

The prolific Jimmy Song says that having real skin in the game is what matters:
Bitcoin doesn’t care if you post arguments on Reddit. Bitcoin doesn’t care if you put something clever in your Twitter name. Bitcoin doesn’t care if you educate people, write articles, or make clever Twitter insults. Bitcoin doesn’t care about your wishes, your feelings or your arguments.
Let’s keep “majority rule” antics out of Bitcoin. There is no protocol condition that activates “if we are all united” and that is a good thing.

With enough hashing power, the mob-induced UASF BIP 148 will lead to a temporary chain split. However, the probability of a Bitcoin minority chain surviving for very long is extremely low due to the lengthy difficulty re-targeting period of 2,016 blocks. Unlike the Ethereum/Ethereum Classic fork, that is a long time for miners to invest in a chain of uncertainty.

Responding to a Reddit post for newbies who are scared of losing money around the 1st of August due to UASF, ArmchairCryptologist explains:
Your advice is sound, but realistically, the most likely scenario is that the UASF either wins or dies. If it gets less than ~12% of the hashrate, it will not be able to activate Segwit in time, and it will almost certainly die. If it gets less than ~20% I also wouldn’t be surprised to see active interference with orphaning to prevent transactions from being processed.
If on the other hand it gets more than ~40% of the hashrate, the chance for a reorg on the other chain is large enough that most miners will likely jump ship, and it will almost certainly win. At over ~20% block orphaning attacks won’t be effective, as it would split the majority chain hashrate and risk tipping the scale. Which means that the only situation where you will realistically have two working chains for an extended period is if you get between ~20% and ~40% of the hashrate for the UASF.
The collectivist UASF BIP 148 strategy will ultimately fail and that’s a good thing. It is driven primarily by those with very little at stake expecting the miners to stake everything by supporting a minority chain. Pretty soon, you run out of other people’s money. This commenter on Reddit understands:
The entire premise was that it was very cheap to switch, but very expensive to stay. That’s when I realized the folly of it all; [it’s] only cheap because they’re not staking anything. But someone has to stake something.
And that’s what is going to cause it to fail. That and the lack of replay protection. People like this guy flip it around and genuinely believe the mining problem will be solved by massively increased value. If they do somehow put enough pressure on exchanges that list UASF, despite the lack of replay protection, and if we take his logic a step further, UASFers are going to be pushing everyone to “buy, buy, buy” UASF and “sell, sell, sell” Legacy Coin. But without replay protection, they’re going to be obliterated by a few smart people who realize there are huge gains to be had.

Alphonse Pace has an excellent paper describing chain splits and their resolution. He walks us through compatible, incompatible and semi-compatible hard forks, arguing that users do have power if they truly reject a soft-fork rule change:
… users do have power — by invoking an incompatible hard fork. In this case, users will force the chain to split by introducing a new ruleset (which may include a proof-of-work change, but does not require one). This ensures users always have an escape from a miner-imposed ruleset that they reject. This way, if the economy and users truly reject a soft fork rule change, they always have the power to break away and reclaim the rules they wish. It may be inconvenient, but the same is true by any attack by the miners on users.

The Future of Coordinating Protocol Upgrades

What group determines the big decisions in Bitcoin’s direction? Ilogy doubts that it is the developers:
Theymos almost completely foresaw what is happening today. Why? Because Theymos has a deep understanding of Bitcoin and he was able to connect the dots and recognize that the logic of the system leads inevitably to this conclusion. Once we add to the equation the fact that restricting on-chain scaling was always going to be perceived by the ‘generators’ as something that ‘reduces profit,’ it should be clear that the logic of the system was intrinsically going to bring us to the point we find ourselves today.
Years later these two juggernauts of Bitcoin would find themselves on opposite ends of the debate. But what is interesting, what they both recognized, was that ultimately big decisions in Bitcoin’s direction would be determined by the powerful actors in the space, not by the average user and, more importantly, not by the developers. 

The developer role can be thought of as proposing a variety of software menu choices for the users, merchants and miners to accept and run. If a software upgrade or patch is deemed unacceptable, then developers must go back to work and adjust the BIP menu offering. Otherwise, mutiny becomes the only option for dissatisfied miners.

In “Who Controls Bitcoin?” Daniel Krawisz says that the investors wield the most power, and because of that, miners follow investors. Therefore, the protocol upgrades likely to get adopted will be the ones that increase Bitcoin’s value as an investment, such as anonymity improvements being favored over attempts at making Bitcoin easier to regulate.

In the future, miner coordination via a Bitcoin DAO (decentralized autonomous organization) on the blockchain could be the key to smooth and uneventful forking. Self-governing ratification would allow diverse stakeholders to coordinate protocol upgrades on-chain, reducing the likelihood of software propagation battles that perpetually fork the codebase.

Attorney Adam Vaziri of Diacle supports a system of DAO voting by Bitcoin miners to remove the uncertainty around protocol upgrades. He readily admits that he has been inspired by Tezos and Decred.

Prediction markets have also been proposed as a method to gauge user and miner preferences through public forecasting, the theory being that these prediction markets would yield the fairest overall consensus for protocol upgrades prior to the actual fork.

The question remains: Is coin-based voting based on allocated hash power superior to the informal signaling method utilized today? Are prediction markets or futures markets a viable method to gauge consensus and determine critical protocol upgrades?

I’m not optimistic. On-chain voting and “intent” signaling are both non-binding expressions while prediction and futures markets can be easily gamed. Therefore, while Tezos and Decred represent admirable efforts in the quest for complete resilient decentralization, I do not think Bitcoin protocol upgrades of the future will be managed in this way.

The Bitcoin ecosystem doesn’t need to achieve a social consensus prior to making changes to the protocol. What has clearly emerged from the events of this summer is that Bitcoin has demonstrated an even stronger degree of immutability.

There is no failure of governance and there is no failure of the market. The non-authoritarian forces at play here are functioning exactly as they should. Protocol upgrades in a decentralized environment are an evolutionary process, and that process has matured to the current six stages of Bitcoin protocol upgrading, with some optional variances for BIP 91:

(a) BIP menu choices competing for mindshare, strategic appropriateness and technical rigor;

(b) Informal intent signaling based on miners inserting text into the coinbase for each block mined;

(c) Block signaling period where miners formally signal a designated “bit” trigger for BIP lock-in, based on “x” percent over a “y” number of blocks period;

(d) Block activation period after BIP lock-in, which sets a secondary period of “x” percent over a “y” number of blocks for activation;

(e) Primary difficulty adjustment period (2,016 blocks) where “x” percent of miners must signal for the upgrade to lock in;

(f) Secondary difficulty adjustment period (2,016 blocks) required for the protocol upgrade to activate on the network.


This would not be the first fork in Bitcoin and it won’t be the last. If we believe in the power of Nakamoto consensus and probabilistic security, then the secret to uneventful protocol upgrades is smoother and more reliable signaling by miners.

July has been a tough month for Bitcoin, but it has also been pivotal. Even though I doubt the probability of success for UASF BIP 148, some may say that the threat of the reckless UASF on August 1 played a role in the rapid timeline for SegWit2x/BIP 91, and I agree with that. Game theory is alive and well in Bitcoin.

The design of Nakamoto consensus provides the ultimate method for decentralized dispute resolution by placing that decision with the hashing power and the built-in incentives against 51 percent attacks. In fact, Tom Harding considers miners to be the only failsafe in Bitcoin:

Nakamoto consensus for the win. See you in November.

This article was originally published by Bitcoin Magazine.

Tuesday, July 11, 2017

Finally, a Bitcoin Exchange by Traders for Traders

By Jon Matonis
Tuesday, July 11, 2017


I first met my Globitex.com co-founders Liza Aizupiete and Andris Kaneps at an inspired café in central Copenhagen during early 2015. Their mantra has always been that Globitex is a trading platform built by traders for traders. Unsurprisingly, that guiding philosophy has permeated every design choice since inception.

As my background is in foreign currency and derivatives trading, I have always aimed to launch a cryptocurrency exchange. In fact, I worked on putting together a Gibraltar-based investment group to purchase the original Mt. Gox from Jed McCaleb in early 2011, however the market proved too immature to finalise the reluctant investor commitments.

Since that time, bitcoin and other cryptocurrency exchanges have matured greatly, expanding into multiple trading pairs, margin trading, and even derivatives trading. All of this innovation has led to increasing liquidity and market depth for bitcoin trading as well ushering in the sophisticated hedging and risk management strategies desired by corporate treasurers.

So, where does the bitcoin exchange industry go from here? It already boasts one of the most predictable revenue streams in the Bitcoin ecosystem with steadily increasing volumes that generate commissions in both up and down markets. And liquidity is “sticky” giving incumbents a distinct advantage. But, traders also have a multitude of choices with at least 400 different exchanges and brokers around the world.

Three clear mega-trends are emerging in the bitcoin exchange industry: (1) an explicit distinction between global exchanges and local, or regional, exchanges; (2) a tendency towards the introduction of clearing members to diffuse the counterparty risk away from the exchange operator; and (3) increased use of margin trading and futures and options contracts.

Globitex is uniquely structured to benefit from all three mega-trends.

A global exchange aims to be a provider of maximum liquidity at the most attractive spreads. It accomplishes this by facilitating ease of trading for the greatest number of clients around the world, typically by providing the most common international transfer capabilities and trading pairs against the leading world reserve currencies.

Conversely, local exchanges will focus on a specific jurisdiction and most likely localise the language and the payment APIs for that audience specifically. Local exchanges do not facilitate global price discovery and they vary by operating model. In a broker model, the company buys and sells cryptocurrency with customers by maintaining their own inventory book and setting a bid/offer spread. Cryptocurrency brokers also do not hold customer balances like they would under a commission-based, order-matching exchange model.

The Globitex exchange provides premier banking relationships, documented trade reporting, and also supports the market standard FIX protocol for automated electronic trading, in use by professional institutional traders, brokers/dealers, mutual funds, investment banks, and stock exchanges.

With bitcoin, a clearing house can be thought of as a wholesale liquidity provider clearing transactions in an over-the-counter (OTC) market or a futures exchange. The clearing house reduces the settlement risks by netting offsetting transactions between multiple member clearing firms and by providing independent valuation of trades and collateral accounts.

Today’s bitcoin exchanges do not employ clearing members thereby consolidating the counterparty risk into a single entity rather than diffusing it among multiple clearing firms.

Globitex will eventually introduce a program for member clearing firms to process transactions on the exchange platform with Globitex monitoring the credit worthiness of member clearing firms and, ideally, establishing and maintaining a guarantee fund (for leveraged trading) that can be used to cover losses that exceed deposited collateral from a defaulting clearing firm.

In the not-too-distant future, an exchange will have to provide adequate margin trading on both the long and short side to be considered a viable exchange contender. The market demands and pressures for leverage will be too great for any exchange that wants to remain a liquidity leader.

Therefore, to facilitate margin trading, Globitex will introduce a two-way borrowing facility for bitcoin and fiat currency. Today, the most robust bitcoin lending facility is offered through the Bitfinex exchange with statistical data provided by BFXdata.

The development of a true Bitcoin economy requires the formation of capital markets with a corresponding interest rate duration curve across 1-day, 30-day, 90-day, and 1-year borrowing rates. Globitex will make a market in fiat-to-XBT swaps and XBT-to-fiat swaps for purposes of margin trading.

Additionally, Globitex will aggregate the leading interest rate markets for bitcoin to form a tradeable interest rate product on its exchange. Similar to LIBOR, the aggregated reference rate will be referred to as BIBOR [Bitcoin Inter-Broker Offered Rate], which is a term first coined in CoinTelegraph, “Bitcoin Needs Its Own Version of LIBOR.”

Globitex also intends to expand into standardised futures and options products that allow risk managers and speculators to trade the bitcoin exchange rate in the same way that they currently trade precious metals, equity indices, bonds, grains, foods, livestock, and crude oil.

Inevitably, we will see new decentralised trading methods, trustless security models and multi-signature techniques, such as threshold signatures, increasingly deployed to prevent against exchange hacks and exit scams. However, the larger trend is still towards gaining multiple entry points onto the exchange platform, because liquidity begets more liquidity.

Above all else, an exchange is ultimately defined by its integrity and the integrity of its principals over a demonstrated period of time.

Disclosure: Author is a shareholder and chairman of Globitex.

Monday, July 10, 2017

Globitex Bitcoin Exchange in BETA Release

Press Release
via Newswire
Monday, July 10, 2017


London, United Kingdom July 10, 2017 (Newswire.com) - A European Bitcoin exchange platform Globitex has rolled out its beta release. Presently running in a limited beta, Globitex is accepting global customers on invitations only. The team includes the former executive director of The Bitcoin Foundation Jon Matonis, serving now as a Chairman at Globitex.

"Globitex is a genuine breakthrough for professional and institutional traders with full support for the FIX protocol and a slick UI. Traders will appreciate a platform designed by traders and the Globitex team has decided to start with the Euro-Bitcoin trading pair to be followed by other currency pairs and margin trading", states Jon Matonis.

Globitex has begun operations by offering a Euro-Bitcoin exchange product (XBTEUR), with an aim to expand fiat and cryptocurrency offering in the near future. Algorithmic trading is fully supported by FIX and REST API interfaces.

The team has been developing the product for the past three years with the goal of providing a more professional trading environment for institutional traders. As a startup, since early 2014 the project was self-seeded by the founders and in 2015 raised the first venture capital funding. The round was carried out by a group of private investors lead by an entrepreneur and venture capitalist Viesturs Tamužs. The company has raised more than EUR 900,000 to date.

“The Globitex team have built a solid exchange product, which is set to prove itself as a reliable service provider in this exciting and fast-paced cryptocurrency industry”, admits Viesturs Tamuzs.

The current Beta release offers to trade at 0% commission and is expected to run with this pricing until public launch. Deposits and withdrawals are available via SEPA and SWIFT.

Source: Globitex.com