Word on the Street: Latest Facebook meltdown leaves no choice but to decentralize
Again Ripple stole the headlines this week with its annual Swell conference including novelty speakers such as Bill Clinton and a performance from the Counting Crows. But it was perhaps the news of the latest data breach at Facebook that was the most significant for crypto this week, forcing its hand closer to decentralization and bringing crypto mainstream.
In Queenstown, New Zealand, Brave New Coin’s Blockchain South conference was a more understated event with executive speakers from the world of venture capital, tech and blockchain including Daniel Masters of Coinshares, Patrick Byrne, CEO of Nasdaq-listed Overstock.com and Jeff Pulver, pioneer of the voice-over internet protocol.
Security tokens, digital identity and the future of decentralized exchanges were among the topics. More details to come.
SEC rejects Cboe bitcoin ETFs (low impact)
The impact of ETF rejections on bitcoin’s price has become more muted in the past few months, with the SEC now having turned down over a dozen proposals. On Thursday, the regulator released an update on the status of the Chicago Board of Exchange (Cboe) GraniteShares Bitcoin long ETF and short bitcoin ETFs.
The disapproval will remain in force pending a review of submissions that closes on October 26. The price of BTC didn’t register any significant movement on the announcement.
**Ethereum upgrade hard fork delayed (low impact) **
Ethereum’s planned network upgrade to Metropolis version 3.1, otherwise known as Constantinople, has been delayed – apparently to give businesses and clients running nodes time to address a vulnerability found that would expose the network to a denial of service (DoS) attack. The delay was announced in a Tweet by Ethereum developer Peter Szilagyi.
Ethereum clients are currently testing the network on the Ropsten. The Constantinople upgrade will reduce the block reward size, and alter data storage and code execution. The new upgrade to Constantinople on Ropsten will be delayed until October 14. The off-chain scaling solution Raiden is also apparently close to mainnet release.
There was no apparent impact on the price of ETH.
Coinbase may get $500m investment, valuing company at $8b ***(low impact)***
The crypto unicorn has been rumoured to be in talks with investment firm Tiger Global about two $250m tranches of investment that would buy out existing shareholders and bring the company’s value to $8b.
Tiger Global has been investing in technologies that appeal to emerging markets and has had stakes in Spotify and Flipkart.
Latest Facebook meltdown gives no choice but decentralize (low impact)
This week brought another leak of sensitive customer data at Facebook, this time exposing users’ details to gateway services such as Spotify which users typically use their Facebook login to access. The share price has taken a hit this week and price is down ~12% year-to-date compared to the broader S&P performance up ~8%.
After the egregious hacks and lack of improvement the company may have no choice but to change its database structure to rebuild user and investor trust. The company has been investigating the use cases for digital assets since 2007 (before the advent of bitcoin) when it applied for a patent for "giving gifts via a social network and displaying icons representing assets … the assets include real assets, digital assets, and virtual assets."
This patent was filed under "Seeding and Discounting Credits in a Virtual Currency System" in 2013.
Since then it has applied for over a dozen crypto-related patents, including a virtual currency network with its own digital interest rate. Former Coinbase executive Marcus David is leading the blockchain development team.
A Facebook coin is almost certainly in the works, which would most likely take the shape of a native utility token to reward users for imparting with their data and on-platform purchases. The company head of blockchain development David Marcus, formerly a Coinbase executive, has implied they are building a "blockchain" from the ground up.
Both Facebook and Google are aware of the regulatory threat to their ad-based revenue model and of the decentralized technologies that are trying to disrupt it. Besides blockchain projects like Ethereum and the Brave Browser, Tim Berners Lee, the man who created the web, plans to upend the internet rentier class with his company Inrupt which is creating the decentralized open-source web he intended it to be.
These pressures are forcing the many hands of big tech to decentralize, but Facebook will be the first mover. While the company needs to quickly rebuild its image before the next controversy strikes and to halt its share price plunge it’s lifeblood is data (advertising is its sole product) and it needs to retain some control over it, so it most likely won’t fully decentralize but create a distributed system which would allow it to retain a degree of centrality in the final decision-making.
By nature, social networks are graph-based networks with relational data retrieved in a web of acyclical connections. Instead of distributing on a blockchain, Facebook could distribute its database on a graph structure similar to that used in IOTA. Another option could be to join the Hedera Hashgraph network (also a graph-based DLT) which has a central council of 39 multinationals from different industries overseeing the governance of the network.
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