plant central bank money as a mediumof exchange.

FUTURE PAYMENT NEEDSIn the future, physical cash or even banktransfers as we currently know them areunlikely to be the main answer. Centralbanks are already working on systemsand digital currencies that will be trustedand used. Existing crypto-assets have ex-hibited a high degree of volatility and areconsidered an immature asset class giventhe lack of standardisation and constantevolution. They present a number of risksfor banks, including liquidity risk; creditrisk; market risk; operational risk (includ-ing fraud and cyber risks); money laun-dering and terrorist financing risk; andlegal and reputation risks. But new knowyour customer and anti-money launder-ing rules will mitigate much of this.

In many ways, the African sub-Saharanregion has become a leader in mobilemoney resulting in a radical change inthe delivery of financial services and sig-nificant gains in financial inclusion.Where there is a lack of payment infra-structure, the use of crypto currenciesimmediately enhances trade and socialinclusion. You only have to think of East-ern Europe which hardly had a fixed linetelephone system before 1989, and sud-denly every man and his dog had a mo-bile phone, leapfrogging to a new world.

Christine Lagarde in an excellentspeech to the November 2018 SingaporeFintech Conference, has posed the ques-tion - should central banks issue a newdigital form of money?

Arguably they already have. As such, itcan only be seen as a force for good.

Temple Melville, CEO of The ScotcoinProject CIC, in conversation with JamesBowater.

For more information visit www.scotcoin.comTemple's LinkedIn profile ishttps://www.linkedin.com/in/temple-melville-81273328/

IMPORTANT INFORMATION: THE VIEWS ANDOPINIONS PROVIDED BY CITY A.M.'S CRYPTOINSIDER AND IN THE CRYPTO A.M. SECTIONSHOULD NOT BE TAKEN AS INVESTMENT ORFINANCIAL ADVICE. ALWAYS CONSULT WITHYOUR FINANCIAL ADVISOR.

Cryptocurrency derivatives are having amoment. The CME has reported all-time highs on its regulated bitcoin

futures, and Bakkt has also recentlyobtained clearance to offer a physically-settled BTC futures contract. Meanwhile, one company is eyeing up the

market for retail cryptocurrency futures.Digitex has recently confirmed a launchdate for the first-ever zero-fee futurestrading platform, a move that could provepivotal for the entire cryptocurrencyexchange space.

WHAT IS DIGITEX?The Digitex Futures exchange is thebrainchild of former professional traderAdam Todd, who started his career in theCity trading pits. There, he learned the art ofscalping – a small profit, high-frequencytrading style. Later, Todd would apply the same

technique to the betting markets. This ledhim to develop a tool called BetTrader, an

online ladder trading interface connectingto Betfair, the world’s biggest bettingexchange. Now, Todd is applying everything he

learned to the development of Digitex. He’sa firm believer that the existing crypto-derivatives markets are ripe for disruption,given that the maker and taker fee structureof the existing exchanges like BitMEX areprohibitive to his style of short-termtrading. By offering a zero-commission futures

16 TUESDAY 27 AUGUST 2019FEATURE CITYAM.COM 17TUESDAY 27 AUGUST 2019 FEATURECITYAM.COM

potential 2.7 BILLION. But Shin’s centralthesis holds good – you need people toUSE these new currencies to make themboth trusted and useful, and having ex-changed goods for the currency, the per-son TAKING the currency needs to findsomeone else to take it as well.

CASH DECLININGThe use of cash has been declining foryears in most western countries, and theCentral Banks have realised that it willhave to be replaced with something. Tothis end both Sweden and Uruguay haverun full scale crypto trials which havelargely been successful, though not setfor full implementation anytime soon.

The use of cryptocurrencies can andshould mean social inclusion. WhilstCentral Banks’ attitude remains “Bitcoin

is not a good idea,” the idea behind it con-tinues to fire imaginations all around theworld.

THE BRIXTON POUNDThis remains a very positive initiativewhich is making a real difference withinBrixton. Arguably it’s as old as Bitcoin.People are prepared to use it and pass iton – and the money stays in Brixton. Thatis different from the likes of Bitcoinwhich is world-wide, but it doesn’t de-tract from the social inclusiveness of it.We look to history for lessons on the na-ture of money and the role of centralbanks in building trust in the use ofmoney in society. The issue of trust hasagain come to the fore in debates on thedurability of cryptocurrencies such as Bit-coin, and how far private money can sup-

Cryptocurrencies are almost as oldas money itself. Indeed, crypto sim-ply means concealed or secret. So

the first man (or woman) who tried toexchange some rocks for a sheep couldbe said to have been using a cryptocur-rency. Up to that point a sheep had beenworth 15 chickens. It’s simple, really. Youattribute a symbolic sense to somethingyou do not see.

FINANCE HOUSES AND LIQUIDITYMove on to the 1600s when after theThirty Years War belief in what thenpassed for “money” was at a low. Some-thing else had to be found, and it was, inthe shape of strong finance houses withrobust links to other similar houses. Theyissued their own currencies when theState currencies could no longer betrusted. Move on again to the Americanexperience of the mid 1800s. There wereover 8000 “currencies” – usually paper –being traded around the country with abig business in accepting and exchangingthem. There had to be some form of cur-rency to enable trade to take place asAmerica expanded. These of course wereseriously open to abuse and eventuallythe individuals and banks that had issuedthem had to bow to the Federal Govern-ment creating its own, reliable currency.

LIQUIDITY CREATED - WIRIn the 1930s there was to all intents andpurposes no liquidity in any markets.Things were so bad that some of the goodcitizens of Zurich created their own cur-rency to enable them to trade. This wascalled WIR and was, indeed, like thosecurrencies before it, a cryptocurrency.Over the years it has prospered (perhapsone would expect a Swiss monetary in-strument to do this) until today it is usedby more than half a million people, over70,000 businesses and transacts someCHF2.5billion annually – that’s aroundhalf a percent of Swiss GDP. By doing so,it illustrates exactly what “Money” is – atrusted medium of exchange that otherswill accept, and a stable store of value.

CRYPTO TODAYThe present crop of crypto currencies relyon digital technology to give them credi-bility. You can’t have a run on the “Bank”

for example – there isn’t one. Despitebeing relatively small in terms of value(only some 0.1% of total world assets) theyalready show what digital and crypto cur-rencies can do to enhance people’s lives.As an example, if you want to send £1mil-lion to anywhere in the world, that willcost you between £20-30,000. Using a dig-ital currency, it can be done for 50p. Infact, the Philippines is looking to create aBitcoin transfer system for its overseas cit-izens. Using this system would save theireconomy over USD1.5 Billion a year – asignificant sum in a poor country.

The three cryptos no one talks aboutThere are three interbank tools that are

in effect digital currencies and have beenfor years. These are:

1. Target2 - the ECB system, the old Bun-desbank system which is currently so po-

litically in focus in respect of Italy2. IMF SDRs - Special Drawing rights3. The highly secret interbank settle-

ment system at the BIS in Basel.These three were absolutely crucial in

getting the world through the 2007 crisis.Hyun Song Shin of the BIS argued last

year that cryptos (and he was specificallytalking about Bitcoin) had issues withscalability and finality. At that time hewas right as you would expect, but he wastalking about first generation blockchain.We have since had second generation inHyperledger, and now third generationcalled Permissioned DecentralisedBlockchain. Facebook’s Libra will largelyuse this system and there can be no doubtthis will revolutionise the use of digitaland crypto currencies world-wide. We’vegone from around 35 million wallets to a

Designed byPhill Snelling, Bowater Media

In association with

CITY A.M.’SCRYPTO INSIDER

Crypto A.M. shines its Spotlight onDigitex Futures

@CityAm_CryptoE:CryptoInsider@cityam.com

JAMES BOWATER

PARTNER CONTENT

Our series on AI, Blockchain, Cryptoassets, DLT and Tokenisation

When I came across bitcoin in late-2014 I viewed it as a speculativeasset whose price was driven by

fear and greed. During the previous yearit had gone from $12 to $1,200, an in-crease of 9,900%, before subsequently los-ing 85% the following year. The conceptof a decentralized internet money wasfascinating, but bitcoin appeared littlemore than an experiment.

Fast forward to 2017 and bitcoin hadmade a resounding comeback. Paymentprocessors that facilitate bitcoin as ameans of exchange were on the rise. Bit-pesa, an FCA regulated company that en-ables cross border payments over theBitcoin Network were on track for over$200MM of volume in 2017. In the US, Bit-pay was closing in on $1Bn worth of bit-coin transactions for its secondconsecutive year. Bitcoin was no longeran experiment; it was the world’s firstdigitally native currency.

Armed with a curious but critical ap-proach, I began to search for data inorder to quantify a valuation for the Bit-coin Network. I was not disappointed.Blockchains, unlike traditional paymentnetworks like Visa and Mastercard, pro-vide a vast array of relevant data aboutnetwork usage to anyone who knowswhere to look. This data includes thevalue and velocity of transfers, the num-ber of daily active users, the estimatedprofitability of the network guardians(or miners), the Profit/Loss position of in-dividual bitcoin holders, total networkdemand, miners’ net inventory positionsand much more. All of which can bedownloaded directly from theblockchain.

Once the data is downloaded, cleanedand processed it is possible to compute arange of metrics to extrapolate a valuefor bitcoin (and other similar crypto-assetnetworks). There are a number of differ-ent approaches to determine bitcoin’smarket value, including both price andnon-price indicators.

One of the most interesting non-pricemodels is the network effect. The model

describes the positive relationship be-tween the growth in active users and thenetwork’s value. The approach was firstused by Robert Metcalfe to model thegrowth of social media platforms such asFacebook and Tencent. Similar to techstocks, the Bitcoin Network facilitates in-teraction between users over a digitalmedium, gaining value as more peopleuse it. Modelling the network effect overthe past two years we can identify threepoints where the market price of bitcoinwas within 5% of that derived throughmodelling it with this approach.

For those looking for a shorter-term sig-nal, the Network Value to TransactionRatio (NVT) is the kingpin for establish-ing bitcoin’s fair market value. The NVTmeasures the value of bitcoin based onits utility as a payment network. Put an-other way, the NVT measures the marketcapitalisation of bitcoin relative to thetotal value transferred over the networkin a given period. The NVT is comparableto a price to sales ratio and has provedhighly effective at signalling when bit-coin is trading at a premium. Movinginto a cash position when bitcoin reachesa premium to this fair value between2018 to the present day would have seenan outperformance of +40% with signif-icantly lower volatility then a buy andhold strategy.

Bitcoin’s meteoric rise and subsequentfall in 2018 left many crypto-asset in-vestors reeling. The problem wasn’t thatthe technology was broken. It was thatinvestors failed to quantify a reasonablevaluation. As the technology has ma-tured, so too have the analytics. Datacompanies such as ByteTree now providea live window into the blockchain to pro-vide network statistics and financial met-rics in real-time. For the first time in thecrypto-asset market investors are able tomake informed, data-driven decisions.

J ames Bennett CEO at Bitassist & Head ofResearch at ByteTree.com Find out moreabout modelling bitcoin’s value using on-chain data at www.bitassist.co.uk.

Last week opened with the news thatBinance is proposing to launch an“independent regional version” of

Facebook’s Libra token, maintaining thecelestial theme with the name Venus. Theproject includes the issuing of a set ofstablecoins pegged to fiat currencies inseveral as-yet-undefined regions. The newsfollows the issuance of a GBP-backedstablecoin through the exchange’s Jersey-based subsidiary in July of this year. The US SEC has issued a cease-and-desist

order against ICO Rating, a site popularduring the ICO boom for its analysis ofupcoming offerings, claiming that thecompany violated Section 17(b) of theSecurities Act. According to the SEC, ICORating was compensated around $100k forits reviews, often deemed questionable byinvestors, without proper disclosures. Themove is part of a campaign by the regulatorto bring to account the unscrupulous

actors from the 2017/18 token mania,which has included action against threenotable ICOs to date.Another major story from the week was

the resignation of US internet retailerOverstock’s CEO Patrick Byrne. Byrnebecame a prominent figure in theblockchain space both for his evangelismof Bitcoin and for integrating crypto intothe listed company’s operations. Theannouncement followed a New YorkTimes’ article in which Byrne madeallegations against the US Government.Finally, derivatives platform BitMEX

announced it was restricting access tousers in three jurisdictions, namely theSeychelles, Hong Kong and Bermuda, all ofwhich are locations where its parent officesare located. The move is intended toensure the safety of users’ funds and islikely due to regulatory pressure beingdirected at the trading venue.

CRYPTOCOMPARE MARKET VIEW

Modelling bitcoin’s fair valuewith on-chain data

SEC cracking down onactors from 2017 boom

Digitex is set to truly disrupt thecryptocurrencyfutures industry.

Immutability is one of the coreprinciples defining blockchains.Immutability means unable to be

changed. But it doesn’t meanpermanent. If the blockchain is shutdown, the data could go away, forever.

SO HOW COULD A BLOCKCHAIN BESHUT DOWN?In the simplest of terms, a blockchaincan be shut down by turning off theentire network of computers whichare required to verify and validate thedata in the blockchain.

WHAT HAPPENS TO THEINFORMATION IN THE BLOCKCHAINONCE IT HAS BEEN SHUT DOWN?The answer depends on what hap-

pens to the servers. If the data iserased from all of the servers andthere is no backup, then the data islost. Shutting down the tens of thousands

of computers running the Bitcoinnetwork would be difficult, but it’s notimpossible. The more nodes, the harderit is to shut down. This is one of thereasons why it is so important to have alarge number of globally distributednodes (computers) supporting a publicpermissionless blockchain.For a private blockchain, the number

of nodes is typically far smaller makingshut down of a private blockchaineasier. For some enterprise customersit may be desireable to have ablockchain which only exists for a

specific period of time. Once shut down, can you turn it back

on again? Possibly. If there are sufficientnodes with a current copy of the datawhen the blockchain was shut down,they may be able to reach consensusbefore resuming the work of adding newdata to the blockchain.The information on a blockchain is

considered to be immutable. Immutabledoes not mean true. Equally, immutabledoes not mean forever. Thanks to Richard Jackson

t:@rncjackson for asking the question:How do you shut down a blockchain?

Get in touch with usinfo@blockchainrookies.com / Twitter@igetblockchain

CRYPTO A.M. INDUSTRY VOICES

Troy Norcross, Co-Founder Blockchain RookiesBLOCKCHAIN SHUTDOWNpossible to trade on Digitex unless you own

DGTX, and because the platform has theedge of its zero-commission model, this willcontinually generate demand. As there is afixed supply of tokens, this demand willdrive up the price. Therefore, the exchangecan fund itself in the future by managingthe quantity of DGTX tokens.

STANDOUT FEATURESThe exchange will feature the same laddertrading interface that Todd set up inBetTrader; the ideal setup for anyonewanting to focus on making instant tradesthat ride the markets. Traders can also takeadvantage of up to 100x leverage. The company has reserved ten percent of

circulating DGTX tokens for automatedmarket makers, which are programmed tolose, creating a mechanical edge in favourof the trader. Digitex is working alongside Moscow-

based development team, SmartDec. AnEthereum smart contract auditing firm witha proven track record of working with someof the biggest names in the blockchainspace.With over 1.5 million subscribers to its

waitlist, Digitex will ensure liquidity fromday one. Digitex will launch to the public intest mode from 30th November with a fulllaunch expected to happen a few monthslater.

Find out more at digitexfutures.com.

exchange, Todd believes he can lure in thelong tail of retail traders wanting to scalpprofits from the volatile cryptocurrencymarkets. So how does a zero-fee exchange make

money? Well, Todd has come up with a way

of using a blockchain-based token, calledDGTX, to generate funding to run theexchange. How it works is that all trade settlements

and account balances on the platform willbe denominated in DGTX tokens. It won’t be

With the Bank Holiday interrupting printingschedules, I wrote today’s column onFriday, 23rd August 2019 in the South of

France. Consequently published market prices areas at the time of writing and might well havechanged considerably by today.Bitcoin (BTC) is down from last week at US$10,126.20;

Ethereum (ETH) is at US$190.81; Ripple (XRP) is at US$0.2714; Binance(BNB) is at US$27.06 and Cardano (ADA) is at US$0.04982. Overall MarketCap is at US$266.22bn (data source: www.CryptoCompare.com)Staying in France, all eyes are on Biarritz for the meeting of the G7 and

it would appear they have a lot to discuss in the world right now! Globalmacroeconomic factors are arguably more important than ever. The Hong Kong protests see no sign of halting anytime soon; the

Kashmir crisis is ongoing; Iranian tensions remain high with task forcesen route; the worst fires for decades are decimating the AmazonRainforest; the German economic situation not looking too healthywhich could spread throughout the Eurozone and obviously the Brexitdeadline is growing ever closer with no concrete signs of an agreement -although Prime Minister Johnson saw glimmers of hope for amendingthe Withdrawal Agreement. All this uncertainty fuels discussion for safe haven investment with

gold punching through $1,500 again. Bitcoin having had a boost fromthe announcement that Intercontinental Exchange-owned Bakkt willlaunch on the 23rd September will be evermore attractive as analternative to gold and not just amongst millennials.Closer to home, I caught up with Oliver Hibbs-Brockway, Founder &

CEO of Nodal as featured in the Crypto AM Spotlight on 30th April (seewww.cityam.com/crypto-insider) who expanded on his recent Forbesarticle for his vision of the future for the freelancer market.Speaking on the phone from Nodal’s London HQ he explained that

“blockchain has fundamentally challenged old processes in almostevery single industry. HR and recruitment, however, is still outdated andcumbersome. The application of ledger technology not only automates systems

such as invoicing and timesheets, as we're doing at Nodal, but it also hasthe potential to form digital identities of people while providingownership back to the holder. The very nature of cryptography providesan ethical environment to gather data. Systems like the Sovrin Networkgive users control of public or private keys. In addition, zero-knowledgeproofs allows users to share and authenticate their digital identitywithout revealing any sensitive information. At Nodal, we’re implementing such technologies that transform both

the accessibility and ownership issues surrounding KYC and data, whichhas proven to be one of the most valuable assets ever. It’s exciting to bepart of a project that has a vision to truly decentralise the skills, talentand characteristics that make us all unique.”I’m particularly keen on the possibilities that Nodal’s tech stack

present - a proper British homegrown business! You can find out moreby emailing Nodal Labs at hello@nodal.com.

Adam Todd, CEO of Digitex Futures

HOW CRYPTOCURRENCIESALREADYADD VALUE TO SOVEREIGN NATIONS