Autor Cointelegraph By Francisco Rodrigues

Bitcoin Lightning Network vs Visa and Mastercard: How do they stack up?

Bitcoin Lightning Network vs Visa and Mastercard: How do they stack up?

Uverejnil používateľ | aug 24, 2022 |

Bitcoin (BTC) changed the world as a decentralized and non-governmental form of currency that can facilitate peer-to-peer (P2P) transactions that transcend national borders. But, despite this functionality, Bitcoin’s role as a payment mechanism has been called into question due to its low transaction throughput.The Bitcoin blockchain can handle up to seven transactions per second, which means that network demand has seen the average transaction fee on the network reach an all-time high above $62 during specific periods. In order to address low throughput and high transaction fees, developers made the Lightning Network — a layer-2 scaling solution that allows for off-chain transactions.The Lightning Network creates a P2P payment channel between two parties in a transaction. The channel “allows them to send an unlimited amount of transactions that are nearly instant as well as inexpensive. It acts as its own little ledger for users to pay for even smaller goods and services such as coffee without affecting the Bitcoin network.” Users of the network lock in a certain amount of Bitcoin in order to create a channel. Once the BTC is locked, recipients can invoice amounts as they need.To a certain extent, the network is seen as a solution to Bitcoin’s scalability problem, but its adoption has been somewhat slow. The network currently has 87,000 payment channels and 4,570 BTC worth over $111 million locked in, compared to the 19.1 million BTC in circulation, the market capitalization of which is over $460 billion.Despite its slow adoption, the network has the potential to outcompete existing payment solutions.Lightning Network’s transaction throughput Payments giants like Visa and Mastercard are used to process payments worldwide. Mastercard’s network is estimated to process up to 5,000 transactions per second, making it far superior to Bitcoin’s seven per second.Visa’s transaction throughput is even more impressive, being able to process up to 24,000 transactions per second. In a recent interview, Visa chief financial officer Vasant Prabhu said that the network can, in theory, handle up to 65,000 transactions per second.The Lightning Network goes much further, however, processing up to one million transactions per second, making it the most efficient payment system in the world in terms of transaction throughput. RACE OF THE RAILS ‍♂️ Bitcoin #Lightning payments vs #fiat contactless payments at the #Gibraltar Bakery. £2.20 loaded up on both PoS. WHO WINS?? ⚡️ ⚡️ ⁦@CoinCorner⁩ ⁦@CoinCornerMolly⁩ pic.twitter.com/b3ezy7FIeq— Joe Hall (@JoeNakamoto) July 25, 2022Cointelegraph reporter Joseph Hall does an impromptu test of the Lightning Network versus fiat contactless payments.Speaking to Cointelegraph, Ovidiu Chirodea, CEO of Romanian cryptocurrency exchange Coinzix, noted that the network marks the next phase in the evolution of money. Per Chirodea, first, there was gold, which was a store of value but wasn’t a convenient medium of exchange, with fiat currency following up as a convenient medium of exchange.Recent: Tornado Cash saga highlights legal issues affecting the crypto marketBitcoin, Chirodea said, was an evolutionary step that created a new store of value, with the Lightning Network serving as a platform for it to also become a medium of exchange:“Visa is charging businesses around 3% to process payments, so I think the Lighting Network is a game changer. Companies will increase their revenue by using it and that’s not something that you can ignore.”He noted, however, that the network’s scalability “isn’t so great,” as users need to open a channel with each party and tie up BTC on it, which affects their liquidity. Per his words, tying up liquidity can be avoided “using other routes and other payment channels,” but the solution “isn’t very scalable as payments channels keep opening and closing.”Thomas Perfumo, head of business operations and strategy at crypto exchange Kraken, told Cointelegraph that since the firm launched Lightning Network support in April 2022, it has “steadily increased network capacity” to the point that it’s now the fifth-largest node on the Lightning Network:“We currently have over 800 open channels that can facilitate upwards of 18 billion satoshis worth of payments. Clients are routinely funding their accounts via the Lightning Network on a daily basis.”Perfumo added that the exchange sees the Lightning Network as “essential for the creation of a permissionless payment system that will ultimately help accelerate the adoption of cryptocurrencies worldwide.”While the Lightning Network’s advantages in terms of transaction throughput are now clear, it has some notable downsides. Firstly, opening up a Lightning wallet and funding it may not be as easy or as ingrained as opening a bank account and using a debit card.Furthermore, funding a Lightning Network wallet requires users to send BTC from a traditional Bitcoin wallet, and creating a payment channel involves locking up funds.Once funds are locked into a payment channel, they can freely transact but can only be recovered after that channel is closed. Moreover, offline transaction scams are possible, as one party may close a channel when the other is offline to try and steal funds. While third-party services may mitigate the risk, it keeps some from entering the network.Privacy, ease of use and censorship-resistanceKeeping these disadvantages in mind, Max Rothman, head of crypto and digital assets at global payment processor Checkout.com, told Cointelegraph that being able to use cryptocurrencies to exchange goods and services “is only effective when crypto can seamlessly exchange hands.”The Lightning Network being peer-to-peer, Rothman added, puts the responsibility for the transactions process on both merchants and customers. On an institutional level, “this can be challenging and resource-intensive to administer in-house without a trusted partner to manage thousands or millions of cross-currency transactions.”Rothman said that solutions like the one used by Checkout.com, which rely on partner companies like Visa to offer on-ramps that allow for crypto-to-fiat conversions, are that “bridge that offers a more seamless translation experience between Web2 and Web3.”Onboarding the next million or billion people to crypto “requires guidance, support, and bespoke solutions that work for every level of payment needs and acknowledges the current payments environment in which we operate,” he stated.Speaking to Cointelegraph, Bruce Fenton, a board member at the Bitcoin Foundation and a candidate for the United States Senate in New Hampshire, said the Lightning Network “enables Bitcoin to do more transactions” while being “more decentralized and censorship-resistant than centralized companies or most other chains.”When asked about the pros and cons of using the Lightning Network over solutions from companies like Visa, Fenton dismissed Visa as “entirely centralized,” which means it can “be stopped or censored.” While centralization may be a concern on the Lightning Network for some, he said that it does not affect the Bitcoin blockchain itself and added:“It’s mostly about what money you are building on and for. For those who believe in Bitcoin as the superior money, LN is the most well-known scaling solution.”Chad Barraford, technical lead at decentralized liquidity protocol THORChain, told Cointelegraph that when checking out at online stores, the Lightning Network enables a “cash” option, in which “there is no other party participating, no exorbitant fees and substantial privacy benefits.” He said that the network is “not solely motivated by the best interests of shareholders or board members” but serves its participants’ interests as a public good, adding:“Visa is a financial institution that inherently seeks profit, control and is at the behest of governments. The Lightning Network is purely a public good. It only exists to provide a fundamental and critical service for every person on the planet in need of access to financial services.”The Lightning Network’s adoption and success are “tightly coupled with the Bitcoin network itself,” Barraford stated. He believes that as the world sees BTC less as a speculative asset and more “like a currency to purchase items,” then inflationary pressures “will push more and more people to the Lightning Network.”While the comparison against networks like that of Visa or Mastercard is clear from these answers, it’s worth pointing out that some of these arguments apply to other solutions such as PayPal, which can be forced to freeze customers’ assets or charge higher fees, for example.Blockchain technology has been developing over time to the point other blockchains are also able to compete with Visa’s transaction throughput without seeking to profit from it.What about other chains?Speaking to Cointelegraph, Fenton hinted that the Lightning Network stands out as “more decentralized and censorship resistant” than most other blockchains. Decred co-founder and project lead Jake Yocom-Piatt built on that idea, telling Cointelegraph that other blockchains are unable to match the Lightning Network’s qualities.Yocom-Piatt claimed that high-throughput blockchain Solana, with a theoretical throughput of 710,000 transactions per second, is a “centralized noncustodial blockchain that requires its validating nodes run in datacenters on high-end hardware.” Comparing Bitcoin, Solana and Decred itself, he said:“Of these three, Lightning Network is the most decentralized, sovereign and most aligned with the original ethos of the cryptocurrency space. Solana sacrifices most of its decentralization via its onerous validating node requirements, but at least it does not appear to be able to censor users and merchants arbitrarily.”Whatever the future holds, it’s clear that innovation in the cryptocurrency space is increasing transaction throughput. Whether users will end up choosing to sacrifice privacy and immutability for more convenience remains to be seen.Recent: Metaverse promises: Future of Web3 or just a market gimmick?As it stands, more convenient solutions are available. It’s now easier to use layer-1 blockchains for payments via centralized entities that allow crypto assets to be converted to fiat currencies at the point of sale.For the Lightning Network to gain a wider audience, more services are likely going to have to support it. Leading exchanges like Coinbase, Binance and FTX haven’t followed the footsteps of other exchanges in embracing the network, hindering its growth. As the network relies on having more payment channels to keep routing transactions, other networks and centralized payment providers are likely to stay ahead.

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Borrowing to buy Bitcoin: Is it ever worth the risk?

Borrowing to buy Bitcoin: Is it ever worth the risk?

Uverejnil používateľ | aug 3, 2022 |

The cryptocurrency space is expected to reach 1 billion users in 2030. While some have been known to make a fortune off of it, others have ruined their finances, chasing similar results, going as far as getting credit to buy crypto by putting up valuable assets, including their homes, as collateral.Borrowing to invest can make sense under very specific conditions, but using a home equity loan is also extremely risky. For example, it means that an investor’s home is being put up as collateral on loan.Cryptocurrencies have, in the past, delivered spectacular results to investors, but also saw them go through long drawn-out bear market periods in which many lost hope and sold at a loss, with those who managed to hodl on reaping the biggest rewards. As any analyst or financial adviser would say, past results are not indicative of future results.When Bitcoin (BTC) was trading at $57,000, MicroStrategy CEO Michael Saylor suggested investors should use all of their money to buy Bitcoin and “figure out how to borrow more money to buy Bitcoin.” At one point, Saylor suggests they should “go mortgage their house” to get more BTC.Never forget Michael Saylor encouraging unsophisticated investors to liquidate every asset they own to buy Bitcoin on leverage.pic.twitter.com/Wvv3c2JpOZ— Nate Anderson (@ClarityToast) June 13, 2022At the time of writing, Bitcoin is changing hands near $23,000, meaning investors who followed Saylor’s words would now be deeply underwater. MicroStrategy has taken out loans from Silvergate Bank and raised capital by issuing debt to buy more Bitcoin, to the point that it now holds 129,698 BTC.While corporate lending differs from personal lending, it’s important to understand what may happen when investors borrow against their assets to buy more crypto and what’s in store for them.Being prudent in a high-risk environmentMortgaging a home to buy cryptocurrencies has been a strategy employed by some investors, one that, if done at the right time, could lead to significant returns. However, it could have disastrous consequences if done at the wrong time.Speaking to Cointelegraph, Stefan Rust, CEO of inflation-tracking platform Truflation, noted it’s “definitely a high-risk strategy” that is “always an alternative” as it’s a “reasonable and cheap source of capital.” Rust added that if the house being mortgaged is paid off and there are “residual assets available to be able to take out a mortgage then why not leverage that mortgage to buy Bitcoin.”The CEO referenced fintech startup Milo, which offers 30-year crypto-mortgages and allows users to leverage their cryptocurrency holdings to purchase real estate as an option, and added:“I personally would not go all out and ‘maximize’ by putting all my earnings into Bitcoin. That’s basically putting all your eggs in one basket. This is a super high risk allocation of capital.”Rust added that for investors with a family to take care of and bills to pay, mortgaging their property “might not be the most advisable strategy.” Per his words, it’s “typically best to deploy common sense and appropriate risk management.”Recent: How blockchain technology can revolutionize international tradeDion Guillaume, global head of PR and communications at crypto exchange Gate.io, expounded upon Rust’s words, telling Cointelegraph that the “easiest way to ruin is to play with shitcoins and try to time the market” and told investors to “never use excessive leverage” and instead “reign in” their greed.Guillaume said that investors must avoid falling for the hype, and while “this can be tough in crypto, discipline is key.” Commenting on leveraging assets to buy more BTC, he advised caution instead of going all-in as Saylor suggested: “We need to be more prudent with the way we use our money. Despite all its greatness, crypto is still a high-risk asset. Are you a billionaire with seven houses? If yes, then you can probably mortgage one to buy BTC. If not, then be smarter.”Speaking to Cointelegraph, Dennis O’Connell, chief technology officer and portfolio manager at crypto portfolio company Peregrine Digital, noted that borrowing to buy crypto is a “textbook case of what never to do with your finances,” as a “house is a great investment over the long term and one of the primary ladders to grow wealth.”O’Connell added he has read “too many articles of destroyed families or of people who have taken their lives tragically by doing this very thing.” He added one should never take out loans or use leverage to invest in Bitcoin if they cannot afford to lose.Cryptocurrency markets are known to be extremely volatile and filled with significant ups and downs, where leading assets can nearly double in a month and bear markets can see BTC lose over 80% of its value.Expect the unexpectedBecause of the cryptocurrency space’s inherent volatility, O’Connell noted that investors need to take into account that Bitcoin is affected by monetary policy the same way other assets are and has “proven not to be an inflation hedge” while being highly correlated to other risk assets.The portfolio manager suggested investors need to expect the unexpected, especially when using leverage:“They should expect the unexpected. Market cycles in crypto are highly volatile. Depending on their local regulations they can try and buy some protection through hedging perpetual futures (not yet legal in United States) to off their risk.”Per his words, the volatility in risk assets seen amid climbing interest rates make it difficult to “justify borrowing against any asset traditional or crypto and going to into Bitcoin.” Addressing suggestions investors could borrow to buy crypto, O’Connell said they must be “highly skeptical and always question the motivation of the source” telling them to borrow.He added the cryptocurrency space is known to be filled with scammers and is heavily influenced by investor sentiment, and as such, caution must be exercised.Thomas Perfumo, head of business operations and strategy at cryptocurrency exchange Kraken, told Cointelegraph that educational resources exist that “everyone should read” before using leverage to buy any cryptocurrency.Perfumo noted that leverage is generally a tool used to maximize returns on capital and, in some cases, leverage it in a tax-efficient manner while also increasing the risk profile of transactions in which it’s being used. This means it’s “important for anyone looking to employ leverage to understand their risk tolerance and manage their risk effectively.”With any risk asset, Perfumo said, investors should never invest more than they are willing to lose, concluding:“When making important financial decisions, it is important for everyone to consider their personal risk tolerance and financial goals. We often recommend people consult with advisers to determine the most appropriate investment strategies.”These important financial decisions should likely also include the composition of investors’ potential crypto portfolios and their role in their overall investment portfolio. To investors who put in more than they can afford to lose, crypto exposure may seem like a nightmare.Reacting to levered positions gone awryGuillaume stated that investors who have a leveraged position in the cryptocurrency space need to consider how much longer they can afford to maintain them, as given enough time, they can keep on holding onto it and hope for their “fortunes to turn.”Guillaume said leveraged traders should use a bull market to turn crypto into cash when they break even so they can pay off their debts and promise themselves they will never mortgage their house for crypto “ever again.”Recent: What Kazakhstan’s new tax regime means for the crypto mining industryO’Connell said that investors underwater on a leveraged position should “should immediately seek the advice of licensed financial planner and expert to structure a plan.” Mental health, he added, should not be set aside:“They should also take care of their mental health and seek help from therapists or licensed mental health professionals. They should know there is professional support both financially and mentally.”At the end of the day, investors need to recognize that cryptocurrencies are risky assets based on technological innovations. Things can change overnight, as the collapse of the Terra ecosystem and subsequent contagion to other firms made clear.To stay safe, investors need to appropriately manage their risk, which may mean their portfolios will be “boring” for quite some time. However, this “downtime” can give them the break they need to heal mentally and improve their outlook.

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Blockchain without crypto: Adoption of decentralized tech

Blockchain without crypto: Adoption of decentralized tech

Uverejnil používateľ | júl 19, 2022 |

A blockchain can be seen as a distributed database whose information is stored across every node running the network. Because the database is distributed among those running the network, it guarantees data stored within it is accurate and securely stored.As the name implies, blockchains store their data into blocks that are added to the network as time goes by. Each subsequent block builds on the information stored in previous blocks, which means blockchains form a data timeline that can be securely trusted.When it comes to cryptocurrencies, the blockchain ensures trust and solves what’s known as the Byzantine generals problem, which describes the difficulties dispersed parties have in reaching consensus. Since Bitcoin uses blockchain technology, one can accurately verify that funds aren’t spent twice, that its supply is limited, and the history of transactions on the network.The technology goes beyond these use cases, however, with a number of companies and organizations having already adopted blockchain without cryptocurrencies.Blockchain technology is usually associated with cryptocurrencies, with the Bitcoin Network being its number one use case. At its core, however, a blockchain is a distributed ledger shared among a network of nodes, meaning its use cases go well beyond cryptocurrencies.Blockchain uses without cryptocurrencyCryptocurrencies steal most blockchain-related headlines, but adoption has nevertheless been growing for the technology. One example could be IBM partnering with the Abu Dhabi National Oil Company to pilot a blockchain supply system for oil and gas production.There are several other examples, including Da Beers Group tracking high-value diamonds along its supply chain with a blockchain and JPMorgan using the technology to calculate loan collaterals. Speaking to Cointelegraph, Johnny Lyu, CEO of cryptocurrency exchange KuCoin, noted that the use of blockchain is “commonplace among government agencies and businesses,” and pointed to the Global Shipping Business Network (GSBN), a consortium that counts on the participation of major institutions including the Bank of China, DBS Bank and HSBC, as an example.The GSBN has been testing the integration of its own blockchain platform to digitize and track container shipments. Lyu also noted the Indian state of Maharashtra has started issuing verifiable caste certificates on the Polygon network, while the Romanian Financial Supervisory Authority implemented blockchain technology to “speed up workflows and reduce the time for manual processing of large arrays of data.”The examples keep on going, Lyu said, noting that it would “take a long time to list all of the latest blockchain initiatives launched in 2022,” adding:“There is no doubt that we are seeing massive and widespread adoption of blockchain technologies and the number of companies doing it will grow by the day. Blockchain is becoming a necessity, just as websites and business accounts in social networks once became such.”Ben Livshits, CEO of blockchain platform Zilliqa, told Cointelegraph about yet another use: The United Nations World Food Programme has deployed blockchain technology in its Building Blocks project, allowing organizations involved to “collaborate, transact, and securely share information in real-time on a neutral network without hierarchy.”The program, Livshits noted, has “already processed over 15 million transactions and supported over 1 million people.” Several other companies, including Ford, FedEx, Walmart and Maersk, have either piloted or actively used blockchain technology.The advantages of using blockchain technology are numerous and as a result, investment in the space has been significant.Advantages of blockchain technologyTaking a food and beverage business as an example, Livshits noted that blockchains can provide “the required transparency that consumers today demand and expect” as the “average consumer today no longer just cares about what they eat and how it should be cooked,” but consider where ingredients are sourced and how they’re handled.Recent: The regulatory implications of India’s crypto transactions taxLivshits added that the adoption of blockchain technology could become mainstream and “even help with quicker payments.” He said:“The benefits are clear: Reduced human error, better access to information, increased safety, traceability and transparency that can ultimately help adequately reward all those through the supply chain.”Blockchain technology, like other technology before it, should “be about creating value and utility for users,” Livshits stated. Sankar Krishnan, executive vice-president and industry head of banking and capital markets at Capgemini Financial Services, told Cointelegraph that blockchain technology is “very ESG friendly,” referring to environmental, social and governance standards to which investors have increasingly been paying attention.Krishnan added that most don’t realize “how many parties there are in a supply chain transaction.” The large amount of parties involved means a lot of data needs to be tracked, including data related to importers, exporters, the transaction itself, the product, shippers, marketplaces, logistics companies, insurance firms and other intermediaries.He added that each of these parties either prints out information or exchanges it via email multiple times, consuming resources. All of this consumption, Krishnan said, would be eliminated if transactions were processed on a blockchain.Moreover, Krishnan added, a blockchain provides more transparency and improves tracing capabilities for raw materials while also making data available to every involved party simultaneously, significantly reducing the risk of fraud. He added:“What actually happens is that all the manual workflows are replaced by smart contracts and there is agreement between all the parties involved on how these workflows move around the blockchain.”Per the analyst: “Industry is set to benefit from using blockchain and smart contracts,” with very specific use cases having developed for financial services, healthcare and retail. Krishnan also pointed to loyalty program management, royalty payments and public sector applications as other use cases.Despite all of these use cases and possibilities, there’s a reason not every company in the world is diving into the blockchain world and the technology isn’t being adopted en masse.The blockchain’s problemsWhile the use of blockchain technology has kept on growing over the last few years, some companies have yet to start adopting it despite the numerous advantages offered. The problem with this type of technology is the required investment necessary to implement it.That’s according to Arry Yu, Cascadia Blockchain Council chair at the Washington Technology Industry Association. Speaking to Cointelegraph, Yu said that implementing enterprise-level software technology requires a “significant investment,” and added that changing management may also be necessary as some stakeholders may not want the provided transparency.Yu added that training stakeholders on new processes and building out the right types of reports that give each stakeholder meaningful key performance indicators also add to the costs, as does the “enormous amount” of upfront investment “related to process redesign, documentation, training, support and more.Kieren James-Lubin, president and CEO of blockchain solutions provider BlockApps, told Cointelegraph that while this type of technology “ensures data is not altered or deleted,” it does not ensure accuracy, as “this is reliant on whoever is inputting the information — manual data entry can be prone to error.”Recent: Will intellectual property issues sidetrack NFT adoption?A solution to these errors, the CEO added, would be the use of accurate Internet of Things sensors to “pull data directly.”Blockchain’s use cases are regularly growing, and implementors are still finding out exactly what can be done with this type of technology and how far it can go. When Bitcoin (BTC) was first launched, smart contract-based applications like those now seen on Ethereum were unheard of.The technology can nevertheless help revolutionize several industries, even though it’s little over a decade old. It remains to be seen whether, to the wider world, Satoshi Nakamoto’s best invention was Bitcoin or its underlying blockchain.

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Hodlers and whales: Who owns the most Bitcoin in 2022?

Hodlers and whales: Who owns the most Bitcoin in 2022?

Uverejnil používateľ | júl 4, 2022 |

One of the main features of the Bitcoin blockchain is its transparency. Bitcoin lets anyone see every transaction that has ever been made on its network and check the balance of every address out there. Because of this transparency, we’re able to know who owns the most Bitcoin (BTC) in 2022.It’s important to look at who owns the most BTC, as the cryptocurrency’s supply is limited to 21 million coins. In February, Kim Grauer, director of research at blockchain forensics firm Chainalysis, told Cointelegraph that an estimated 3.7 million BTC have been lost, effectively deflating the cryptocurrency’s circulating supply.Experts estimate that as Bitcoin’s adoption rises, demand for it will skyrocket. As 3.7 million coins are estimated to be lost and a significant amount is being held on-chain by early investors, what may follow is a supply shock. Such a shock could only materialize if demand skyrockets in the future.Those who own the most Bitcoin are set to greatly benefit from such a shock. Moreover, a significant supply being held by one entity is seen as a risk because if that entity ends up selling its war chest on the market, it could lead to a significant downside.Who owns the most Bitcoin?The entity that is widely acknowledged to hold the most Bitcoin is the cryptocurrency’s creator, Satoshi Nakamoto. Nakamoto is believed to have around 1.1 million BTC that they have never touched throughout the years, leading to several theories regarding their identity and situation.A significant amount of analysis has been put into determining how many coins Nakamoto actually has. After bringing BTC into existence by mining the genesis block, Nakamoto mined a significant number of blocks through their hardware at the time, with each block coming with a 50-BTC reward. Nakamoto always used different Bitcoin addresses and disappeared back in 2010. It’s unclear how many blocks they mined as other early adopters got in on the action rather early as well. Lower estimates point to Nakamoto having around 750,000 BTC. While the exact holdings of Nakamoto aren’t completely clear, those of publicly traded companies, governments, funds and other transparent organizations are. Public and private company holdingsOver time, several organizations have added Bitcoin to their balance sheets. The most notable is business intelligence firm MicroStrategy, which accumulated 129,218 BTC after first investing in the cryptocurrency in August 2020.The company’s CEO, Michael Saylor, has doubled down on the company’s Bitcoin strategy throughout the bear market, saying MicroStrategy plans to hold BTC “through adversity.” In early 2021, possibly thanks to influence from Saylor, electric car maker Tesla also invested in Bitcoin, risking $1.5 billion to buy 43,200 BTC.According to Bitcoin Treasuries, a website tracking the Bitcoin held by publicly traded firms, other companies that have Bitcoin on their balance sheet include Core Scientific, BTC Miner Marathon Digital Holdings, fintech giant Square, crypto exchange Coinbase and crypto investment firm Galaxy Digital.Thomas Perfumo, head of business operations and strategy at Kraken, spoke to Cointelegraph regarding companies’ cryptocurrency holdings:“All companies should have an open mind towards Bitcoin, but they should consider what represents the best interests of their shareholders. At Kraken, we hold cryptocurrencies as a treasury asset.”Perfumo added that Kraken also offers employees the option to take “as much of their salary in crypto as they would like via a payroll solution we call Sidemoon.” He added that a “significant number” of Kraken’s employees take advantage of the solution.Public companies are estimated to have a total of 268,271 BTC, equivalent to over 1.27% of Bitcoin’s total supply. Over the years, however, several private companies have also revealed they hold BTC.The private companies with the largest amounts of BTC are the firm behind the EOSIO software Block.one, which holds 140,000 BTC, the Tezos Foundation, which holds 17,500 BTC, and Stone Ridge Holdings Group, with 10,000 BTC. MassMutual comes next, with 3,500 BTC.In total, private companies reportedly have 202,068 BTC. Speaking to Cointelegraph, Bill Barhydt, CEO of crypto investment firm Abra, noted companies should invest in BTC but opt for the “right size” for their treasuries. Barhydt added:“Companies with a long-term time horizon should consider putting even more of their liquid assets into Bitcoin and Ethereum.”The CEO revealed Abra holds Bitcoin by likening it to companies known to have invested in the cryptocurrency, including Tesla. Per his words, as accounting rules in the United States are “fixed and modernized, it will become even easier to replicate” what companies like these are doing.Countries that own the most BitcoinThere are several countries holding Bitcoin as well. Most have gotten their hands on the flagship cryptocurrency by seizing it, but these holdings are often quickly sold in auctions to private investors.El Salvador is the country holding the most Bitcoin, with 2,301 BTC in its treasury. The country adopted the cryptocurrency as legal tender in September 2021 and has invested in it numerous times. It’s planning on creating a Bitcoin City, using power from a volcano.In April 2022, Finland was reported to be holding 1,981 BTC confiscated during criminal investigations with plans to auction off the funds later on in the year. At the time of writing, no report suggesting the funds have been auctioned emerged.Ukrainian civil servants have provided data through Opendatabot showing they have owned a total of 46,351 BTC as of April 5, 2021. These declarations came as property disclosure requirements imposed on public officials, meaning they’re the holdings of individuals and not the government itself.Similarly, Georgian parliament members are said to collectively hold 66 BTC, although the funds belong to private individuals and not the government.Bitcoin fund holdingsCryptocurrency investment funds allow investors to gain exposure to their underlying assets without dealing with them. In practice, this means gaining exposure to a cryptocurrency like Bitcoin without having to deal with public or private keys.Funds add more Bitcoin in response to investor inflows and divest of their holdings as investors withdraw. The largest fund holding Bitcoin is Grayscale’s Bitcoin Trust, which has 643,572 BTC, equivalent to over 3% of the cryptocurrency’s circulating supply. Next is CoinShares, which holds around 42,980 BTC through XBT Provider’s exchange-traded products.Ahead of this month’s crypto market sell-off, the Purpose Bitcoin ETF was the largest exchange-traded fund by BTC holdings. The sell-off saw the fund’s holdings drop from 47,818 BTC to 23,307 BTC between June 16 and 17, a staggering 51% drop. The fund’s holdings are still estimated to be above those of 3iQ’s CoinShares Bitcoin ETF, which has an estimated 12,115 BTC.Largest individual Bitcoin holdingsBitcoin addresses are pseudonymous, which means that while we easily see what addresses have the most Bitcoin in them, we can only identify who’s behind each one through extensive blockchain analysis or if the entity behind them comes forward.Data from BitInfoCharts shows that the top Bitcoin wallets belong to cryptocurrency exchanges, which means they hold the assets of various users who choose custody of their funds on exchanges. Data shows there are five Bitcoin addresses with between 100,000 and 1 million BTC in them. Four of these have been identified and belong to exchanges.Bitcoin holder composition. Source: BitInfoChartsWhile it’s possible to see how many addresses hold how much BTC, this doesn’t exactly answer the question of what individuals have the largest Bitcoin holdings. Analyzing the market and individuals’ statements, however, provides us with various clues.Changpeng Zhao, founder and CEO of leading cryptocurrency exchange Binance, was said to have a net worth of $96 billion in January 2022, with this estimate reportedly not including holdings of Bitcoin and BNB.The CEO has said numerous times that he holds no fiat currencies, which would imply significant BTC and BNB holdings. While exact figures aren’t known, it’s rather safe to assume Zhao is among those holding a significant amount of Bitcoin.Other well-known large Bitcoin holders are Tyler and Cameron Winklevoss, who invested the millions they earned from their lawsuit against Facebook into cryptocurrencies and became the first Bitcoin billionaires. The duo was rumored to at one point own 1% of all Bitcoin in circulation.Silicon Valley-based venture capital investor Tim Draper is known to have purchased at least 30,000 BTC back in 2014, buying the coins from an auction held by U.S. authorities after seizing the funds from the now-defunct darknet marketplace Silk Road. Other individuals believed to have large amounts of BTC include Digital Currency Group CEO Barry Silbert, FTX CEO Sam Bankman-Fried, Saylor, and Coinbase CEO Brian Armstrong. Their exact holdings — if they even hold Bitcoin — are unknown.Bitcoin hodler growth and its supplyAs the number of Bitcoin holders out there grows, the available supply of the cryptocurrency goes down, potentially leading to the aforementioned supply shock. Kraken’s Perfumo noted that the magic of crypto is that any individual has complete flexibility in managing their crypto custody.Abra’s Barhydt said that investors in Bitcoin and Ether (ETH) should have a minimum time horizon of five to seven years or longer and should “assume that those funds are locked up for at least five years, given the volatility inherent in valuing exponentially growing technologies.”Assuming funds are locked up would add to the potential supply shock. Kent Barton, tokenomics lead at ShapeShift DAO, told Cointelegraph that bear markets “have historically been an excellent time to purchase Bitcoin at relatively low prices,” even though there are no guarantees prices will ever rise again.During bull markets, Barton said it’s important to “take a certain percentage of your risk off the table,” as moving some BTC to fiat when prices are high “means that you’ll be in a better position to weather the next bear market and have dry powder to buy Bitcoin at low prices.” Barton added:“On a very long-term timeframe, Bitcoin continues to serve as a potential hedge against the dollar collapsing.”Whether Bitcoin is a good investment or not depends on who you ask. The currency can neither be debased through inflation nor can its transactions be censored by a central authority. To some of its holders, prices are almost irrelevant as long as these and other qualities are maintained.

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Crypto 401(k): Sound financial planning or gambling with the future?

Crypto 401(k): Sound financial planning or gambling with the future?

Uverejnil používateľ | jún 6, 2022 |

In April, United States-based retirement plan provider Fidelity Investments moved to allow 401(k) retirement savings account holders to invest directly in Bitcoin (BTC), the flagship cryptocurrency, making crypto a potential part of one’s savings for the future.A 401(k) is a retirement savings plan offered by many U.S. employers that give the saver tax advantages and allow for several different investment options. Fidelity’s move will make it easier for Bitcoin to be among those options.In a typical 401(k) plan, employees agree to have a percentage of each paycheck paid directly into an investment account created for the plan, while employers often match part or all of the employees’ contributions.Fidelity is the largest retirement plan provider in the United States, and its BTC rollout will make the cryptocurrency available to more than 40 million employees — assuming their employers decide to offer it. Investors who take advantage of the initiative could effectively become tax-advantaged long-term BTC hodlers removing coins from circulation every month.The company’s plan limits BTC allocations to a maximum of 20% and allows companies to make the threshold even lower. Offering cryptocurrency options for 401(k)s isn’t new, however. In June 2021, another retirement plan provider, ForUsAll, partnered with Coinbase to offer BTC exposure to its account holders.ForUsAll even recently filed a lawsuit against the Department of Labor and Secretary of Labor Marty Walsh in the United States District Court for the District of Columbia, seeking the withdrawal of a compliance assistance release.The release states that the department’s Employee Benefits Security Administration will “conduct an investigative program aimed at” 401(k) plans that include cryptocurrency. Speaking to Cointelegraph at the time, ForUsAll CEO Jeff Schulte said the government was “trying to restrict the type of investments Americans can choose to make because they’ve decided today that they don’t like a certain asset class.”Questions of government overreach aside, it’s also important to consider whether including crypto assets in a retirement plan is a good idea. The Bitcoin network has been around for over a decade and has outperformed every other asset class so far, but as any analyst will say, past performance does not guarantee future results.Crypto volatility and 401(k) plansConsidering that Bitcoin and crypto assets in general are recent financial experiments only a little over a decade old, some investors may find digital currencies too risky. Cryptocurrencies can be highly volatile, and their value has been known to plunge by up to 80% during bear markets — something that could prove disastrous ahead of someone’s retirement.While employees aren’t forced to withdraw from their 401(k) plans when they retire, the point of the money being there is to provide them comfort during their sunset years. Waiting for the market to recover or simply accepting such significant losses could be devastating.Recent: Is education the key to curbing the rise of scammy, high APY projects?Chris Kline, co-founder and chief operating officer of Bitcoin IRA — a cryptocurrency-focused individual retirement account provider — told Cointelegraph that there is a “growing conversation around the adoption of digital assets and their growing use case.”Kline pointed to Senator Tommy Tuberville from Alabama, who recently unveiled a bill, the Financial Freedom Act, that seeks to allow Americans to add cryptocurrency to their 401(k) retirement savings plans.According to Kline, part of the “retirement crisis we have in this country [the U.S.] is due to a lack of participation in 401(k)s.” He added that such moves could be a way to get newer generations engaged through their employer-sponsored plans and help Americans retire while testifying to the resilience and relevancy of crypto assets. Kline added:“Crypto is certainly volatile, but its resiliency and relevancy in its short existence are remarkable. Having at least some exposure — and more importantly, experience in crypto — is becoming paramount to modern investing.”Cryptocurrencies could have the same disruptive impact on money that the internet had on communications or that email had on post offices, Kline stated.Speaking to Cointelegraph, Scott Melker, a cryptocurrency influencer and the host of the Wolf Of All Streets Podcast, noted that every investor should have “at least minimal exposure” to Bitcoin, with Ether (ETH) a second possibility worth considering.According to Melker, even a small allocation in these assets potentially offers “idiosyncratic risk and the opportunity to invest in an asset [that] can go up when everything else is dropping.” Melker added that crypto markets crashing ahead of retirement might not be the biggest concern, saying:“Any market can crash ahead of retirement, so this is not a concern specific to Bitcoin. Investors in tech stocks right now are largely underperforming crypto in their retirement accounts.”Melker added that investors should be allowed to invest in any asset they prefer for their retirement, concluding that while self-directed IRAs are “popular for this reason,” 401(k) holders haven’t yet had such an option.A volatile asset class for diversified portfoliosOver the past few years, more and more people have come to consider cryptocurrencies an investable asset class, with demand clearly present for retirement savings. In a survey conducted by Investopedia, one in four millennial respondents reported that they are already using crypto to help fund their retirement goals.Employers, however, still have their doubts. The Plan Sponsor Council of America recently surveyed its members, which are employers sponsoring qualified savings plans, and asked whether they are considering adding crypto to their investment options. Only 1.6% responded affirmatively.Sculpture of a bear and a bull on a seesaw, representing the changing markets, in front of Fross and Fross Wealth Management office in The Villages, Florida. Source: Whoisjohngalt.Speaking to Cointelegraph, Daniel Strachman, managing partner at A&C Advisors and an independent trustee of the Arca U.S. Treasury Fund, said that cryptocurrencies are nevertheless “something that a diversified portfolio should include.”According to Strachman, an individual’s level of exposure to crypto assets should depend on several factors, including age, income, other assets and more. To him, it’s “all about investor education,” as there “needs to be significant information, content and educational programs available to investors, regardless of the size of their assets.”Cameron Collins, an investment analyst at Viridi Funds — a company offering crypto and clean energy investment solutions — echoed Strachman. He told Cointelegraph that sound cryptocurrencies like Bitcoin “are great investments and deserve a place in 401(k) plans.”According to Collins, memecoins and scam tokens with “no fundamental value” do not deserve a place in these types of investments, and policymakers — along with investors and plan administrators — should be made aware of this important caveat.Cryptocurrencies, he said, offer “extreme upside potential” but lack investor protection, which can be a significant drawback. The upside potential may, however, be all an investor needs.Giving prudent managers more opportunityHaving more options to invest across different assets, including cryptocurrencies, may give a prudent manager “more opportunity to optimize that long-term rate” of return, according to Thomas Perfumo, head of business operations and strategy at crypto exchange Kraken.Speaking to Cointelegraph, Perfumo noted that retirement is often associated with low risk, but “This heuristic misses the market,” as $1 compounding over 30 years at an 8% rate will grow to surpass $10, while that same $1 compound over 30 years at a 6% rate grows to $5.74.According to Perfumo, optimizing that rate of return over the long run is “how an individual builds wealth, overcomes the burden of inflation and ultimately accrues enough to retire comfortably.”Perfumo added, “Risk tolerance evolves over a person’s lifetime. Someone closer to retirement, who may already have a significant amount of savings, will likely have a lower allocation to risk-on investments like cryptocurrency.”He added that conversely, individuals at the start of their careers have “more capacity to take on risk and will likely allocate more of their capital towards risk-on assets.”Recent: A life after crime: What happens to crypto seized in criminal investigations?The potential downsides to adding crypto to retirement investment plans, Perfumo said, involve fiduciaries failing to “act in their clients’ best interests by rushing into a risky product or misallocating their clients’ capital relative to their risk profiles.”On the other hand, someone who wishes to manage a self-directed retirement portfolio “should have all available options at their disposal, so long as they are informed of the risks.”Adding cryptocurrencies to 401(k) plans means adding tax-efficient investment opportunities for investors looking to hold onto their assets for an extended period of time. As with any other financial decision, the choice should be adapted to investors’ risk profiles and should only be made after thorough research and help from advisers if necessary.Cryptocurrency investments do not match everyone’s risk profile, nor should they. They are voluntary, but they may be highly beneficial to investors who thoroughly understand the risks involved.

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