Top 8 Events and Trends in Bitcoin 2019
So, 2019 is no more. It’s expired and gone to meet its maker. It was the 10th anniversary of the crypto industry. There were ups and downs, unfulfilled prophecies, mutual criticism, and lots of speculations. In a word, nothing unusual.
In this feature, we’ll recall the key events of 2019 for the cryptocurrency that shaped market movements and laid the foundation for future trends that may determine the next decade.
FATF Recommendations, Fifth EU Directive, and Harsher Regulation
The FATF has published the final version of recommendations for the crypto industry. They suggest that bitcoin exchanges and other cryptocurrency service providers comply with AML and CFT measures the same way traditional financial institutions do. Even though experts and analysts tried to persuade the task force that such measures are very hard or even impossible to implement, and this harsh regulation would drive lots of companies in the shadow, the recommendations were approved by the G20. This launched the countdown of 12 months, and in June 2020 those measures have to be implemented in national laws.
Even countries that do not participate in the FATF proceeded to work on those recommendations. By late 2019, harsher regulations of the crypto industry became more pronounced. Korea-based exchanges had to delist Monero, ZCash and Dash for being too anonymous for local banks. Major exchanges started implementing special instruments to track suspicious operations, while others started blocking withdrawals to wallets that support coin mixing.
It all signifies that the industry is on the brink of major changes. Even though they won’t be immediate, it seems reasonable for crypto industry players to weigh on whether they play by the new rules or stand tall for the ideals and philosophy of the censorship-free world of cryptocurrencies.
The new reality may become very unfriendly to many companies, which is probably confirmed by the shutdown of several firms that went out of business because of the Fifth EU Directive (5AMLD EU). It will become enforceable as of 10 January 2020 and places strict accountancy demands on companies working with cryptocurrencies while entitling financial intelligence units to obtain addresses and identifiers of digital asset holders.
Digital Currencies, Courtesy of Facebook and Telegram
In June, Facebook announced its native digital currency Libra, a global stablecoin that uses safe, scalable and reliable blockchain. Governments and regulators almost immediately started claiming they will never accept such a thing. According to them, a private currency of this kind would undermine the stability of the global financial system, decrease the solvency of banks and their monetary reserves, cause money to flow out of developing economies, and increase the risks of money laundering and terrorism financing. They also cited past privacy scandals with Facebook to express concerns about the protection of personal data.
This story culminated with hearings in the U.S. Congress. Even though Mark Zuckerberg and Calibra CEO David Marcus answered lots of questions during the hearings, Congress ruled that the project can’t be greenlighted until regulators’ doubts are dissipated. Meanwhile, the German government went as far as adopting a strategy to counter the issuance of private digital currencies. Those events caused some major players like PayPal, Visa, and MasterCard to leave the project.
Still, Libra Association did not concede defeat. In late December they published a second roadmap covering the development of Libra Core software. The organization confirmed that they are proceeding with launching Libra, however, the final date will depend on their negotiations with regulators. Meanwhile, lots of people in the community watched another project, TON (Telegram Open Network) that had been in the works since 2018. Two closed presale rounds of the project’s ICO brought $1.7 billion to the team. The launch was expected in 2019, however, the SEC announced that it puts limitations on offshore companies Telegram Group and TON Issuer Inc thus thwarting the original plans. The Commission ruled that Telegram offered non-registered securities in the U.S. and beyond and sold nearly 2.9 billion Gram tokens for a knocked-down price to 171 initial buyers. One billion tokens were sold to 39 buyers from the U.S.
Still, investors seem to believe in the project nonetheless. My majority vote, they refused to demand refunding and approved the rescheduling of the platform’s launch to April 2020. This, however, may not be the final date as litigating with the SEC could take a while.
Meanwhile in China
Having successfully banished most cryptocurrency businesses from their country, the Chinese authorities kept on with this tradition by applying more pressure on those who stayed. In November, the state propagandist channel CCTV-1 named cryptocurrencies “non-registered securities, scam, and Ponzi schemes” while the Shanghai authorities initiated a new investigation to put a lid on crypto trading and token sales. Nearly at the same time, the social network Weibo blocked official accounts of Binance and Tron Foundation referencing violation of laws and regulatory requirements. The authorities also encouraged citizens to snitch on crypto traders they know.
Notably, the mining industry in China is still mysteriously safe. China is still the global leader of mining: nearly 70% of all bitcoins are mined in Sichuan province alone.
This new wave of oppression was preceded by Xi Jinping’s statement on the necessity to support the development of blockchain tech and its integration in AI, Big Data, and the Internet of Things. After that, the Chinese newspaper People’s Daily reported that the country’s leading universities launch blockchain courses and local municipalities are going to present their blockchain initiatives. Thus, the authorities of Guangzhou will assign 1 billion yuan ($142 million) to subsidize blockchain projects.
Meanwhile, the Chinese parliament has passed a cryptography bill that standardizes cryptographic applications and the process of managing public and private keys. The law will become effective as of 1 January 2020. A special government entity under the auspices of the Communist Party will regulate cryptography. China Merchants Bank invested in bitcoin wallet BitPie that used to be the most popular among local cryptocurrency owners. It is still unknown what kind of cooperation two companies will have but some believe that the deal kicked off the nationalization of China’s cryptoindustry.
Bitfinex vs the Empire State
On April 25 the prosecutor’s office of the state of New York accused Bitfinex of hiding $850 million losses by covering them with funds from the issuer of stablecoin Tether affiliated with it. According to the prosecutor’s office, iFinex Inc, the operator of Bitfinex and Tether, used their own funds and the funds of their clients. This might be the cause of troubled withdrawals that Bitfinex users had experienced earlier.
The prosecutors believe that Bitfinex gave those funds to a Panama-based payment services provider Crypto Capital Corp. that could withhold assets from other exchanges as well, including Binance, Kraken, BitMEX, and bankrupt QuadrigaCX. When Crypto Capital accounts were frozen in numerous jurisdictions in 2018, Bitfinex faced a big problem.
The exchange momentarily denied everything. Still, the news caused bitcoin price to plummet and prompted users to panic-withdraw their funds from the exchange: in a few hours, almost 19,000 BTC was transferred from Bitfinex’s cold wallet to unknown addresses.
Eight months later, the story is far from the conclusion: the parties keep on accusing each other of wrongdoings and make statement after statement. The exchange persists in their vision of the situation noting that the state of New York has no jurisdiction over Bitfinex and Tether. The situation got even more complicated with a class action lawsuit for more than $1.4 trillion against iFinex Inc. and its subsidiaries. Crypto Capital, Global Trade Solutions AG earlier involved in a shadow banking case, as well as former and sitting top managers of Bitfinex are accused of violating commodity exchanges legislature, the Racketeer Influenced And Corrupt Organizations Act, as well as money laundering, pump and dump, market manipulations, and willful deception of investors.
Whatever will be the end of this story will definitely impact the entire crypto market.
Ethereum on the Way to Proof-of-Stake and ETH 2.0
Ethereum had two scheduled hard forks, Constantinople and Istanbul. ETH developers claimed that the cryptocurrency’s ecosystem is entering the early phases of ETH 2.0, which is a new evolutionary step for the project that implies switching from Proof-of-Work to Proof-of-Stake. Vitalik Buterin said that it would make Ethereum more secure than bitcoin. Other developers, however, said that this is a necessary step to maintain Ethereum’s competitive advantage.
Ethereum 2.0 will be a separate blockchain (beacon chain) with a new token that will initially work at the same time with the current version of Ethereum. The system will undergo a comprehensive security audit this February. This winter will also see the launch of a testnet supporting various clients. For around 3 months the team will be testing a deposit contract. If everything goes as planned, Ethereum 2.0 will go live in mid-summer 2020 at the earliest. Still, some express doubts that those ambitious plans will work as intended.
The Boom of DeFi
DeFi (decentralized finance) experienced a boom in 2019. The industry uses open-source codes and seeks to make finance more open and free using blockchain tech and smart contracts. The innovative market of crypto loans began from the ruins of bitcoin price. Seeking to avoid locking in losses, some holders loaned money using digital assets as collateral in the middle of crypto winter.
DeFi services are mostly based on Ethereum, and since recently ETH-based tokens have started a career of being a collateral for loans. They are mostly used by traders, ICO/IEO projects and borrowers experimenting with alternatives to the red tape of banking. The market of DeFi is growing: a year ago, locked ETH collateral was worth $189 million. This December, the value has surpassed $600 million. The DeFi market is currently dominated by Maker whose smart contracts contain 2.3 million ETH (over $342 million at the time of writing).
Synthetix is another noticeable player in the DeFi industry. It offers decentralized trading for synthetic assets that can be derivatives of cryptocurrencies or traditional assets like fiat or commodities. The service uses its native token SNX that can be blocked to create ERC-20 assets for trading.
This nascent market is very small compared to its traditional peer. Still, this sector deserves attention considering its fast growth and the potential of market development.
Sidechains Gain Steam
First, bitcoin-based sidechains (Liquid and RSK) were launched back in 2018 enabling the companies (Blockstream and RSK Labs respectively) and their customers to move funds between exchanges much faster and to use L-BTC token to exchange them for assets created on alternative blockchains.
Fast forward to May 2019, the network of the most popular sidechain Liquid had over 30 participants, including Bitfinex, BitMEX, OKCoin, Huobi, and CoinCheck. Blockstream also presented the first Liquid-based product, a platform for launching security tokens secured by multi-signature smart contracts on the bitcoin network. In July, Liquid Network added atomic swaps and Lightning Network. With the participation of Tether, they launched USDT thus marking the fourth most capitalized crypto asset available for arbitration.
Developers of other sidechain were not resting as well. In October 2019, the creators of Horizen, a cryptocurrency focused on enhanced user privacy, announced a sidechain in alpha that enables developers and companies to create cheap blockchain almost on the go. They claim Horizen’s sidechain is an important milestone on the way to an environment of various applications that would implement privacy and decentralization of blockchain tech.
Is Mimblewimble a Breakthrough?
Mimblewibmle was devised as a second layer for bitcoin that would enhance the privacy of transactions and the network’s scalability. Still, the developers later decided to test the technology on a cryptocurrency of their own. Sixteen months later they presented Grin but were not the first to create a Mimblewimble-based coin as the developers of Beam had unveiled their brainchild a bit earlier.
Both cryptocurrencies became somewhat popular over the course of 12 months and are available on several major exchanges. Still, the technology that underpins them attracts even more attention. In October, Litecoin developers published two protocol improvement proposals focusing on the integration of Mimblewimble to enhance the privacy of transactions.
Those privacy-enhancing properties could potentially become the “wunderwaffe” that would lead the industry to greater acceptance in the mainstream, considering the regulators tend to be merciless to more popular anonymous coins like Monero or ZCash.
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