32 minute read
2022 Predicted to be a Record year for Metaverse Real Estate������������������������������������������������������������������
Crypto Weekly
Despite the general trend of cryptos going down in this new year, there is still a piece of the market that continues to thrive. Metaverse virtual real estate is still growing at a fast pace, both in terms of interest and prices, despite the impressive traction it achieved in 2021.
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Despite the calamity in traditional and crypto markets, two areas have seen actual adoption: NFTs and the Metaverse, said Hayden Hugues, CEO of crypto social trading platform Alpha Impact. "What started as a small group of niche enthusiasts has now grown into a full-blown ecosystem. Currently, Sandbox and Decentraland are major hubs of transactions, and the Enjin team is incubating and investing heavily in projects in the metaverse. The concept of intrinsic value from the real world carries over into metaverse land."
Indeed, the market opportunity for bringing any number of metaverses to life may be worth more than $1 trillion in annual revenue, according to a Grayscale report. The asset management firm estimates that revenue from virtual gaming worlds could grow to $400 billion in 2025, from $180 billion in 2020.
Yaёl Bizouati-Kennedy
Data from DappRadar shows that The Sandbox - one of these virtual worlds - generated nearly $12 million in land NFT trading volume, becoming the topgrossing virtual world based on land NFT sales Decentraland generated $6.2 million.
According to a statement, Tokens.com recently bought 116 parcels of land in Decentraland's Fashion District for $2.4 million to host "the first of its kind virtual fashion event" on March 24th to 27th, which is "expected to draw some of the biggest fashion brands in the world."
The fashion show will feature avatar models, catwalks, pop-up shops, after parties, and immersive experiences, connecting digital to physical fashion. "The event aims to strengthen the fashion ecosystem in the metaverse,
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James Aitken, Chief Marketing Officer, Ethernity Chain
connecting communities, new designer brands, and NFT projects," according to the statement.
James Aitken, Chief Marketing Officer, Ethernity Chain — an NFT project in which auctions verified artwork — told GOBankingRates that we're in the early stages of metaverse development, similar to the Myspace days of the rise of social media platforms.
"With global companies like Samsung entering the Decentraland metaverse and using NFT-utility to monetize assets on the blockchain and enhance user interaction, a new audience will be attracted to Metaverse platforms," Aitken said. "Investors should also pay attention to projects like The Sandbox, which Ethernity recently partnered with to add its library of world-class licenses to its platform, expanding the ecosystem's reach." He added that believers in NFT utility and metaverse projects would invest throughout the coming months, as will speculative investors. "Those could very well end up being good investments, but I would temper expectations for 2022. We should expect to see big moves happening in this space in 2023 and 2024," he said.
In addition, native tokens of several metaverses are also skyrocketing: MANA, Decentraland's underlying token is up 868% in the past year, while The Sandbox's token is up 2616.6% and Axie Infinity's was up 6592.5%, according to CoinGecko. A representative of digital asset trading firm Secure Digital Markets, Zach Friedman, told GOBankingRates that he also expects the metaverse to continue to grow in popularity this year due to big brands and tech companies noticing the space's potential.
"These groups are focused on a digital 'land grab' to position themselves for the future. Facebook's 'Meta' has been a strong catalyst for growth and development in the broader market thus far, and the sentiment is very bullish. New projects and secondary markets are heating up significantly," Friedman said.
In terms of what investors should look at, Friedman says they should pay attention to location and functionality, similar to traditional real estate.
"Blue-chip Metaverses such as Decentraland and Sandbox have been building new districts and bringing in events such as metaverse fashion week in DCL," he said. "These companies are not just dreamers but builders, supporting their Metaverses and bringing in realworld utility and user growth."
GOBankingRates.com
Crypto Weekly
El Salvador adopted Bitcoin first & May also be First to Go Bankrupt
Andres Oppenheimer
El Salvador made headlines last year when it became the first country to use Bitcoin as legal tender, enabling people to buy anything with it. However, after Bitcoin's value dropped almost 50% in recent days, the question is whether it will become the first country to go bankrupt due to cryptocurrencies. Several big-name economists believe that is already happening.
"El Salvador's adoption of Bitcoin has been an unmitigated disaster!" tweeted Nouriel Roubini, the economist who is best known for predicting the 2008 crisis. "The country is now effectively bankrupt." El Salvador's populist president Nayib Bukele, 40, first announced his decision to adopt Bitcoin at a Miami conference in last June. The Bukele-controlled Congress later passed a law making Bitcoin legal tender and making it mandatory to accept payments in that crypto-currency. However, that part of the law was never enforced.
As the price of Bitcoin fell from more than $61,000 in October to $35,000 on Jan. 23, Bukele doubled down and purchased another $15 million in Bitcoins. "Some guys are selling really cheap," he tweeted. But economists aren't amused. Alvaro Trigueros, head economist of FUSADES, one of El Salvador's best-known non-government think tanks, says that this experiment is already costing the country $200 million in funds that don't contribute anything to our economic development. "It was a waste of money."
I was told that Trigueros' estimate of $200 million includes:
The treasury funds are used to buy
Bitcoin. The price of the government's "Chivo wallet" application to send Bitcoins. and The cost of implementing the $30
Bitcoin giveaway that Bukele gave all
Salvadorans to encourage them to use Bitcoin. El Salvador's government now finds itself short $1.4 billion to meet its
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domestic and foreign debts. To make things worse, the nation's "country risk" — a measure that banks use to gauge its ability to pay its debts — has soared, and the value of El Salvador's bonds has plummeted.
"We're now in a high-risk situation, in which the economy could collapse," Trigueros told me.
The El Salvadorian Bitcoin experiment was already in trouble before the latest price collapse of the cryptocurrency. Despite the government's $30 Bitcoin gift for each person who downloads its Chivo Wallet Bitcoin app, only 10% of Salvadoran companies have made at least one Bitcoin transaction, according to a FUSADES poll. When the $30 government handout was rolled out late last year, many Salvadorans used them to make purchases and haven't used Bitcoin since.
A separate poll of 480 business people by El Salvador's Chamber of Commerce and Industry found that only 1% of the value of their sales involved Bitcoin. The U.S. dollar, El Salvador's legal currency, continues to be used for virtually all commercial transactions. "The implementation of the Bitcoin wallets program was very deficient. There were all kinds of technical problems," Jorge Hasbún, president of the Chamber, told me. "Some people made purchases in Bitcoins, and the money mysteriously disappeared," Hasbún added that, because of the digital wallet's technical problems and the wild swings in the price of Bitcoin, Salvadorans have become increasingly skeptical about the crypto-currency.
About 2% of family remittances sent by Salvadorans living in the United States to their relatives back home are being sent in Bitcoin. But, other than that, virtually no Salvadorans are using Bitcoin, Hasbún told me.
There is nothing wrong with El Salvador allowing Bitcoin for some transactions, such as family remittances from abroad, to help people reduce bank commissions. But Bukele went too far by gambling large amounts of government funds to buy an extremely volatile currency.
To make things worse, his entire Bitcoin program has been shrouded in
Jorge Hasbún
secrecy, with few details known about the government's cryptocurrency transactions. My suspicion has always been that Bukele passed his "Bitcoin Law" as a public-relations ploy to portray himself as a cool, technologically-savvy leader — and to divert public attention from international criticism over his increasingly authoritarian rule.
Now, the country may pay a heavy price for his publicity stunt.
miamiherald
Crypto Weekly
Bitcoin, the CryptoTeenager Throws Interest Rate Tantrum
Lisa Pauline Mattackal and Medha Singh
The Bitcoin community is growing up. Original cryptocurrency turns 13 this year and is showing signs of maturing as a financial asset - but beware of teenage tantrums. Due to the large bets made by institutional investors, Bitcoin has become sensitive to interest rates, fuelling a sell-off this month as investors prepare for a hawkish Federal Reserve policy meeting.
We live in a different time. A cryptocurrency, born in 2009, was still on the fringes of finance during the Fed's previous tightening cycle, from 2016 to 2019, and barely correlated with the stock market. Bitcoin has been positively correlated with the S&P 500 index since early 2020, according to Refinitiv data, meaning they broadly move up and down together. Their correlation coefficient has risen to 0.41 from 0.1 in September, where zero means no correlation and 1 implies perfectly synchronized movement.
By contrast, that coefficient was just 0.01 in 2017-2019, according to an International Monetary Fund analysis published this month. "Now that Bitcoin is not entirely held by early adopters, it's sitting in a 60/40 type portfolio," said Ben McMillan, chief investment officer of Arizona-based IDX Digital Assets, referring to the institutional strategy of allocating 60% of a portfolio to relatively risky equities and 40% towards bonds. "It's not surprising that it's starting to trade with a lot more sensitivity to interest rates." Bitcoin closed below the $40,000-mark for the first time since August 2021 on Friday, some way off its November peak of $69,000.
HEDGE AGAINST INFLATION?
The crypto market is increasingly characterized by big investors rather than the smaller retail players who drove its early movements.
The total assets under the management of institutionally focused crypto investment products rose in 2021 from $36 billion in January to $58 billion in December, according to data provider CryptoCompare.
On top of this, there was bumper buying from the corporate likes of Tesla and MicroStrategy, plus hedge funds adding crypto to their portfolios.
"The cryptocurrency ecosystem grew from a total market valuation of $767 billion at the start of the year to $2.22 trillion by the end of the year," CryptoCompare said.
The drift towards mainstream finance raises broader questions in 2022 and beyond about whether Bitcoin can retain
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its role as a diversification play and hedge against inflation. IMF researchers said that Bitcoin's increasing correlation with stocks limited its "perceived risk diversification benefits and raised the risk of contagion across financial markets."
Bitcoin is also often regarded as a hedge against inflation due to its limited supply akin to gold, the more-established store of value in an inflationary environment. However, its correlation with stocks has seen it become increasingly roiled along with broader markets by the most significant annual rise in U.S. inflation in nearly four decades.
"In the current case, Bitcoin is not acting as an inflation hedge. Bitcoin is acting as a risk-proxy," said Nicholas Cawley, strategist at DailyFX, based in London. Jeff Dorman, CIO at digital asset management firm Arca in Los Angeles, added: "It is also a tad ironic given that the bull case for many digital assets in spring 2020 was expectations for higher inflation. Now that we have inflation, it is weighing on prices." Kraken Intelligence, a research blog from cryptocurrency exchange Kraken, said that about 60% of all Bitcoin in circulation hadn't changed hands in over one year, the highest level since December 2020.
Meanwhile, funding rates for perpetual swaps across major exchanges - indicative of sentiment among investors betting on Bitcoin's future price movements - were reasonably flat, hovering around 0.01%, as per data platform Coinglass.
Investors are displaying a notable unwillingness to spend coins, according to blockchain data provider Glassnode. "In the face of tumultuous and unconvincing price action, this signals that this cohort of holders are patiently waiting for higher prices to spend their respective supply," it said.
Favorable rates imply that traders are bullish, as they must pay to hold a long position, while negative rates mean traders must pay to have a short position or bet on the price falling.
Reuters
Ben McMillan
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Crypto Weekly
PROJECT 1
FuddoxxToken
FudDoxx Token (FDOX)
FudDoxx FudDoxx
Building on security, FudDoxx offers a wide range of services to benefit the entire crypto space. The team has compiled a list of projects that have passed their extensive verification process. FudDoxx offers doxxing services to bridge the gap between investors and developers. The doxxing info received by the team is securely stored for use in the event that a project scams, and is proven as far as possible, then that information would be released to the public and authorities. FudDoxx Audit service goes beyond the detailed analysis of solidity code. Not only tearing apart the smart contracts, but their risk assessment factors in the audited projects vision, team, maturity, funding, and community.
The FudDoxx team has also incorporated a beautiful, userfriendly NFT marketplace in their ecosystem, (see for yourself, FudCoinNFT.com), where you will find everything from pixelated images, audio, video, and unique sports memorabilia NFT's, to name a few. The simple navigation process streamlines buying and selling digital art.
Fuddoxx doesn't stop there!
Swap platform: Complete (Swap.FudDoxx.com) Staking and Farming platform: In development ICO launchpad: In development
With so many avenues for continual success in crypto, FudDoxx truly covers every base with their comprehensive suite of revenue-generating, and security, features.
FudDoxx Token (FDOX) launched on Binance Smart Chain with a total supply of 100 trillion and has 328 holders at the time of writing. A 12% tax is attached to every transaction which breaks down to 7% LP, 3% marketing in BNB, and 2% native reflections.
PROJECT 2
dexioprotocol.com
Dexio Protocol (DEXI)
dexiochat dexioprotocol
It’s estimated between 3-4% of the world population is engaged with cryptocurrencies or blockchain technology in some way, and that number continues to grow. Dexioprotocol plans to help that growth through a medium most of the world is familiar with: Gaming. With a complete ecosystem of play-toearn games, Dexioprotocol wants to introduce the world to the possibilities of blockchain technology. Their aim is to become the industry standard in Augmented Reality (AR) application development, in addition to revolutionizing blockchain-based gaming, launching the most user-friendly NFT platform found to-date, and developing their own blockchain network and swap exchange.
This isn’t a new project trying to build hype before delivering. Dexioprotocol has been quietly shaking up the blockchain space and setting itself apart from the rest since May 2021. In seven short months, they have successfully released:
Dexi Wallet, its digital wallet available now on the Apple App Store and Google Play
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PROJECT 3
Income Island
incomeisland.org incomeisland incomeisland
Income Island Token is a one-of-a-kind concept, developed to make anyone generous stable profits on a daily basis. The integrated gaming system uses blockchain technology which will allow anyone to earn a passive income whilst having fun at the same time. In addition, you may buy and own a personal mining plot and even more than one to generate an income. You may rent out your plots to other players and earn NFT’s offering extra Island Tokens every time someone sells, meaning you earn an income while you sleep.
As Warren Buffet famously said “If you don’t find a way to earn money while you sleep, you will work until you die!" Through the ongoing development, Income Island will strive to make sure that the ecosystem is a safe and friendly environment to earn a passive income for the long term. Income Island Token, is not just all about the great rewards, it also has a great, doxxed, and highly dedicated team that is supported by a steadfast and strong community. The fundamentals for the ecosystem were created through Income Island`s global team and consists of both volunteers and working professionals from all over the world with skillsets ranging from web development, marketing, Dapp creation, and many other entrepreneurs willing to deliver a stellar financial product to the Income Island community. The Income Island Token is a revolutionary coin, created to be a safe.
PROJECT 4
agromatic.io
Agro-Matic (AMT)
agromatic agro_matic?s=09l
Agro-Matic is a decentralized system that aims to accelerate the adoption of cryptocurrencies in Africa while connecting the world to the various natural resources on the continent and helping generate passive income streams through Defi, Lending, Staking, and Yield Farming.
Agro-Matic is built on the Polygon (Matic) Blockchain. Polygon is one of the fastest chains. Through investment in crop and livestock farming, a charity for farmers, and lots more, Agro-Matic intends to use technology to create massive job opportunities and accelerate the ease of investing in agriculture through investment in ease of access. Agro-Matic tokenomics, is made of provision for charity, development, and marketing, which work in tandem to achieve company goals.
Crypto Weekly
Metaverse Study: 70% of Virtual Store Visitors Make Purchases
Adriana Lee
In the early days of the web, fashion slept on e-commerce's promise, but it doesn't want to do the same with the Metaverse. The upcoming 3D version of the internet is causing brands to partner up, develop strategies, launch divisions, and more. According to a new survey released Tuesday, their leap of faith appears justified. The virtual e-commerce platform Obsess engaged Kantar to measure sentiment toward e-commerce in the virtual worlds. One of its surveys of 1,001 U.S. consumers found that these types of shopping experiences inspire a great deal of enthusiasm and are likely to induce repeat purchases.
According to the report, "The Metaverse Mindset: Consumer Shopping Insights," 70 percent of those who visited virtual stores made a purchase. Millennials topped the list at 77 percent, leading to 69 percent of Gen Z and 67 percent of Gen X shoppers. The findings focused heavily on gaming. Seventy-four percent, or nearly three-quarters, of Gen Z participants purchased digital items in games, such as avatar accessories, skins, or clothing. Sixty-two percent of players purchased something in-game, and 52 percent would pay up to $49.99 for something for their avatar.
"The numbers were higher than we had expected in some cases because the technology is still relatively new," Neha Singh, CEO of Obsess, told WWD. 60 percent of Gen Z consumers think
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brands should sell their products on metaverse platforms - and that's not just for digital or physical products. "It's more about the fact that they are spending so much time on Roblox and Fortnite, and the expectation of this demographic is that the brands meet them where they are." Nearly 75 percent of Gen Z consumers reported buying a digital product in a video game, and 60 percent of these young consumers believe selling on metaverse platforms is a must for brands.
Of that group, 54 percent said they want to be able to shop anywhere they go online; 45 percent think virtual stores should work like online shopping malls, and 41 percent want brands to set up metaverse stores because it would be convenient for buying both physical products and digital goods like NFTs. One-third of all respondents, including 40 percent of Gen Zers and 40 percent of Millennials, want to shop for real or virtual products in the Metaverse.
But traction doesn't always hinge on younger shoppers. Fifty-four percent of Gen Zers who shopped in a virtual store before said they were likely to do it again, while 67 percent of Gen Xers said the same.
Marketers may want to note that the enthusiasm goes beyond shopping and transactions for some consumers. When researchers asked participants about exploring virtual experiences from their favorite brands in video games, 51 percent of Gen Zers and 44 percent of Millennials said they would be very interested. Forty-one percent of Gen Z and 38 percent of Millennial respondents showed interest in exploring any metaverse environments from the brands.
Singh pointed out that, while virtual experiences and 3D stores existed before, the right conditions for them have only come together recently.
"In terms of actually being practical, on a mobile device, with the hardware that we have today, and network speeds that we have today, it's only been possible in the last two or three years," she said. "It's actually being delivered to consumers in a way that is easy for them to access. They don't have to put on a virtual reality headset, and they won't have to download an app," she continued. "The hardware network speed has only been strong enough in the last like two to three years for them to be able to deliver this. And then, of course, brands are actually using it." She noted that the other inflection point was the maturity of gaming platforms.
In 2019, the Entertainment Software Association revealed that 65 percent of American adults spent time playing some type of video game, representing some 164 million people. The number jumped during the pandemic by roughly 30 percent in 2020, and in 2021, the U.S. hit 227 million gamers. Most stated they plan to continue, even after the pandemic is over.
"The pandemic accelerated that, with Roblox now having 45 million daily active users and Fortnite having 350 million monthly active users," Singh explained. "So now this is a very significant group of people for these brands to reach."
Gaming is but one gateway to the Metaverse. Other companies launch their own virtual e-commerce stores, relying on tech partners like Obsess to build them. These immersive environments may seem like cuttingedge fare, but such spaces can feel more
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familiar to shoppers. "It's getting closer and closer to how our brains operate, so it's straightforward for people to understand," she said.
Obsess notes that interest in its platform jumped last year, remarkably after Facebook changed its name to Meta. The company, which has created virtual online stores for Christian Dior, Ralph Lauren, Fendi, Charlotte Tilbury, Dermalogica, and others, saw a traffic boom. In contrast, average monthly inbound inquiries from brands seeking virtual stores and metaverse solutions jumped threefold. Although skeptics remain dubious about the Metaverse, and it will take years — even up to a decade — for it to arrive, the fashion sector seems sold. It doesn't want to miss out on the opportunity in this future, likely because the past haunts it.
Brands saw the web debut as a publicly available service in the early 1990s and watched as start-ups like Amazon started selling books on the internet soon after. By the time Gucci opened its e-commerce site in 2002, a landmark launch for luxury online shopping, Amazon had finally gotten the hang of internet retail and reported its first quarterly profit of $5 million. The e-commerce giant, which plans to launch its first brickand-mortar apparel store later this year, forecasts net sales in the fourth quarter of 2021 in the range of $130 billion to $140 billion.
Lesson learned, and fashion is not hesitating this time with the Metaverse. According to the Obsess/Kantar report, many consumers can't wait either — including some who don't exactly know what the Metaverse is. At 53 percent, just a little more than half of the survey participants said they are very or somewhat familiar with the term. Roughly 40 percent said it's still in the conceptual stage but know it will someday involve connected online platforms and avatars, and 27 percent think that "metaverse" refers specifically to tech owned by Facebook's Meta.
Whatever they believe it is, 38 percent overall want to shop there. Desire looked strongest among the Gen X crowd, at 56 percent, but captured fewer Millennials, at 44 percent, and Gen Z shoppers, at 42 percent. For a tech movement that hasn't yet begun in earnest, the numbers already look promising, though Obsess believes that retailers and brands will need to hone their Metaverse messaging and make the appeal clear. Many, including its clients and more, including brands such as Gucci, Nike, OTB Group, Rebecca Minkoff, and numerous others, have already started. Good thing they will have plenty of time to work on it.
WWD
Crypto Weekly
What Is a Stablecoin?
Astablecoin is a cryptocurrency that enjoys price stability through a reserve asset. There are several reasons stablecoins are gaining popularity:
Instant processing of cryptocurrency. Cryptocurrency payments are secure and private. Stable fiat currency.
Many people believe that cryptocurrencies' wild price fluctuations mean they aren't suitable for day-to-day transactions. A currency must be both an effective means of exchanging goods and services (i.e., acting as a store of value) and a reliable unit of account (i.e., having stability). Consumers will not adopt it if they do not have confidence in the future purchasing power of crypto. Cryptocurrencies must be stable enough to be used by people rather than saved.
Types of Stablecoins
Because government authorities issue fiat currencies, they tend to be viewed favorably, providing price stability for fiat currency. But this also means that most fiat currencies are controlled by their respective central banks. Stablecoins attempt to bridge this gap between fiat currencies and cryptocurrencies. Stable coins fall into one of four broad categories: fiat pegged (based on national currencies), crypto pegged (based on cryptocurrencies), non-collateralized (algorithmic), and commodity-backed.
Fiat-Collateralized Stablecoins
To issue a suitable number of crypto coins, fiat-collateralized stablecoins maintain a fiat currency reserve, like the U.S. dollar. Some stablecoins are collateralized with precious metals and commodities like gold and silver, but most are collateralized with dollar reserves.
Independent custodians maintain such reserves, who are regularly audited to ensure compliance with the requirements. There are two popular fiat-collateralized stablecoins, Tether and TrueUSD, which have a value equivalent to that of a single U.S. dollar and are backed by dollar deposits.
Crypto-Collateralized Stablecoins
With crypto-collateralized stablecoins, other cryptocurrencies are used as collateral. Due to the high volatility of the reserve cryptocurrency, these stablecoins are overcollateralized. A more significant number of
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cryptocurrency tokens is maintained as a reserve for issuing fewer stablecoins. For example, 2x worth of a particular cryptocurrency's value may be held as reserves for issuing only 1x worth of crypto-backed stablecoins to account for potential price volatility. One way to contribute to price stability is by having frequent monitoring and audits. similar to the printing of banknotes by a central bank to maintain the value of its fiat currency. The solution consists of implementing a smart contract on an autonomous decentralized platform. These smart contracts manage the supply of tokens in circulation.
Commodity-backed
Non-Collateralized (Algorithmic) Stablecoins
In contrast, non-collateralized stablecoins do not depend on a reserve but instead rely on a mechanism, not unlike those used by a central bank to keep their price stable. Dollar-pegged base coins use a consensus mechanism to increase or decrease the supply of tokens according to demand. This is Stablecoins backed by physical assets such as gold, oil, and real estate are commodity-backed stablecoins. One of the most popular commodities that can be collateralized is gold; two of the most popular stablecoins that back gold are Tether Gold and Paxos Gold. However, it is essential to remember that these commodities can, and are more likely to, fluctuate in price and, therefore, can potentially lose value.
How Are Stablecoins Regulated?
Regulators continue to closely monitor stablecoins because of their $130 billion market size and the potential effect on the broader financial system. According to the International Organization of Securities Commissions (IOSCO), stablecoins should be regulated like payment systems and clearinghouses. Stablecoins identified by regulators as disrupting payment and settlement transactions would be specifically targeted by the newly proposed rules.
What's Next?
As we have seen, there are a variety of different types of stablecoins. Each has its own benefits and drawbacks, but they all share one common goal--to maintain a stable price. As a primary tool for cryptocurrency adoption in loan and credit markets, stablecoins inherit many functions formerly reserved for fiat currency. In this sense, they represent a new type of digital asset, one that has been designed to fit into existing financial infrastructure.
Regulators are just starting to catch up with this new type of digital asset, and as DeFi continues to develop, stablecoins will play an increasingly important role in the broader financial system. What do you think about stablecoins?
Crypto Weekly
No One Controls the Tornado Cash Privacy Mixer Protocol, so No Person or Government Can Stop it
Sam Reynolds
Following the revelation last week that hackers were using Tornado Cash to mix stolen ether from the digital asset exchange Crypto.com, Tornado Cash has gotten much attention. The mixer allows users to obfuscate their digital trails on the Ethereum blockchain. Ethereum's best-known coin mixing service cofounder says privacy protocols protect people's financial privacy. Co-founder Roman Semenov said the team has little control over what its users do with the protocol as it's designed to be autonomous and outside developers' control.
"There is not much we can do in terms of helping investigations because the team doesn't have much control over the protocol," he told CoinDesk. "The Tornado Cash team mostly does research and publishes the code to GitHub. The community makes all the deployments, protocol changes, and important decisions via Tornado Governance DAO and deployment ceremonies," an event when new code is pushed live.
The way the protocol is designed, decentralized and autonomous much like decentralized finance (DeFi) protocols, means there's nobody in charge. There's no corporate office,
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executive team, or CEO where the buck stops. Semenov said there's no backend, and the user interface comes from an Ethereum Name Service domain – a service that represents Ethereum addresses as familiar-sounding domain names.
"The protocol was specifically designed this way to be unstoppable because it wouldn't make much sense if some third party [like developers] would have control over it. This would be the same as if someone had control over Bitcoin or Ethereum," he told CoinDesk.
Do Tornado Cash's actions constitute a criminal conspiracy?
Users of Tornado Cash are not the first to be able to mix or tumble their cryptocurrencies. Since the dawn of blockchain technology, they have existed, with development efforts increasing in parallel with the ubiquity of darknet markets like Silk Road or Alpha Bay.
Mixers are well known to law enforcement. In a previous interview, Bill Callahan, a former DEA agent who is now director of government affairs at the Blockchain Intelligence Group, told CoinDesk that he doesn't believe Tornado Cash is laundering money, comparing it to evading the police. However, it would be justified to investigate it as part of the scheme.
A mixer who knows or should have known the source of the funds and the beneficial owner, and the funds are from an illicit source, would be investigated as part of a money-laundering scheme. Additionally, he said they could be charged as an accessory to the crime in a criminal conspiracy.
The Financial Crimes Enforcement Network (FinCEN) said mixers like Tornado Cash might fall under the definition of a money transmitter and therefore have "obligations" set by the Bank Secrecy Act (BSA). But it hasn't given any further guidance.
With the high-profile takedown of darknet Bitcoin mixing service Helix, then-U.S. Assistant Attorney General Brian Benczkowski said that "[obscuring] virtual currency transactions in this way is a crime."
However, Larry Dean Harmon, the service's operator, pled guilty. The prosecution never had to prove its case, meaning there isn't a precedent that can say with certainty that this is money laundering. For its part, Tornado Cash's Semenov said law enforcement hasn't been in touch.
"Law enforcement usually knows that
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the developers don't have any ability to assist with an investigation or change the protocol," he told CoinDesk.
"Law enforcement very rarely tries to contact us directly," he said. Instead, Semenov said law enforcement would spend its time obtaining logs from infrastructure providers like Cloudflare or Infura, as these could be tied to IP addresses. Law enforcement would also likely look at any addresses linked to a centralized crypto exchange. The wallet would have customer details linked to it via the know-your-customer (KYC) process.
The privacy versus security debate
Semenov downplayed any ideas that the protocol is a tool for criminals and said it's an important mechanism to protect the safety of crypto traders as the blockchain reveals everything for all to see.
"Since all their crypto portfolio is visible to the public, the holders of significant amounts of crypto are very vulnerable to becoming victims of kidnapping, torture, and blackmail," Semenov told CoinDesk in an interview. "We think that it's a grave threat, and the privacy protocols are very important to ensure their personal safety. The banks don't disclose your personal holdings to anyone who asks, and we think it should be the same way with crypto."
Semenov said the debate about the limits of digital privacy isn't anything new. It has always flared up any time new encryption technology has become available to retail users. "In the 1990s, the government claimed that no strong encryption should be available to people at all, arguing that it would help terrorism," he said. "In the late 2000s, there was a similar fight over end-to-end encryption in messengers where people were defending their right to private communication."
Now, in the 2010s and 2020s, crypto is this latest frontier, and Semenov said his efforts in defending people's right to financial privacy are the "continuation of the same story that started a long time ago." He added, "Can you imagine the world where the cypherpunks conceded from the start and we wouldn't even have HTTPS encryption of our web communications?"
Coin Desk
Manifest
Performance indicators, balance sheets and regulator guidelines are not the most appealing things to hear about in crypto, but it's necessary for us to operate correctly. Bouncing off of that, there is a certain appeal to a crypto that has its ducks in a row. Countless projects are removing general quality and value from their project and replacing it with marketing and high spirits. We are happy to get people pumped up about crypto, but it has to be done the correct way. For example, you want to tell people key things of what to look for when considering their vote of confidence in that particular crypto. Who is the team? Previous quality projects completed? Are they purely marketing? Is the use case frantically thought of or flimsy? Does the team have a vision of expansion in the future? Does the project rely on people's addiction?
Of course, this isn’t financial advice, but we feel you should have a checklist that you are checking off when you inspect a project. This can be as vast as you want it to be and ultimately can be tuned to your liking. This can be personal auditing procedures or standardized trading strategies. These steps take time to curate correctly and can benefit the user greatly. A simple checklist. Of course you can bend your own rules, but these rules protect you from overvalued and hollow projects. The goal of most of the projects we currently see is short term, under established and widely false. Crypto is fast, this doesn't mean you can forget the key factors of a trade and fundamentals of crypto. Never mistake a tax on a taxation token as a use case or utility.
All that brewing has ultimately led to the market's sour taste and low level mentality. The key to leveling the playing field is a short and sweet one, actually educating people on crypto. A lot of projects will detest what we have to say about them in a formal audit. We have decided to audit any project or firm that audits us, to help people better understand the process. As we pay for more intense auditing services, we can perform even deeper audits of these projects. Meaning, we will bring you the truth. This is going to make us naturally unpopular, we are crypto veterans, we will be alright. We buy the dip!
In summary, don't trust us, or anyone else until you know their tokenomics and team. This is the most basic level of understanding the project. Please make efforts to learn more about the cryptocurrency space overall. We will be in the telegram often to answer people's questions. We don't allow posting of other projects in the group, but if you bring your checklist to us, we can help refine that with you.
