Looking critically at the aftermath of the great DAO heist of 2016
June 23, 2016 Geneva / London / Hong Kong
By Gavin Smith, Chief Executive, First Global Credit
Anyone interested in cryptocurrency and innovative use of the Blockchain cannot help having heard about the most egalitarian expression of this technology, Ethereum. And anyone interested in the progress of Ether as a DIY cryptocurrency must be familiar with how Ethercoin is being used as the basis of DAOs or decentralized autonomous organizations. DAO is a method for making investment decisions where choices are made by collective agreement not by fund directors.
There already have been a few DAOs but the first one with any traction has been created by German startup, slock.it. Slock.it has members of the Ethereum project team Simon Jentzsch and Stephan Tual on its board. The DAO concept is based on a set of smart contracts that represent investment opportunities presented to the DAO ‘collective’ of investors. Along with buying tokens to the DAO comes the right to vote on which opportunities the DAO takes a position in. The view being that decisions made by consensus will be more profitable as the intelligence of all the investors is behind the selection. Investment utopic dream?
That dream turned into a nightmare last Thursday with news that of the $150m invested in the slock.it DAO at least $60m has been withdrawn by a “hacker” who exploited a vulnerability in the script that governed distributions from the DAO.
The flaw that is at the root of the DAO security problem is based on what first appears to be the strength of the Ether model with its embedded scripting language. Ether permits individuals or organizations to develop powerful smart contracts with complex behaviours. Unfortunately, this flexibility goes hand in hand with the risk that the implementation of a particular solution is not well thought through. This leaves customers of the smart contract (or in this case DAO) at risk of faulty contract implementation with weak security.
This risk has always been played down by the prime movers of the Ethereum project but the fact that the management of Slock.it is also made up of some of the core development talent of the Ether project proves that this risk is not only valid but also not easily overcome – after all, if these developers can’t get the security model right how are others supposed to?
This issue, however, pales into insignificance when compared to the much larger concern … what happens now that the hack has been discovered?
One proposed response to the hack is to roll back the Ether Blockchain – while appearing attractive at first, this route, if taken, has far reaching consequences for Etherium’s future.
Nobody condones the siphoning of funds from the DAO but it should be remembered that this project was highly experimental and participants took part in something that was largely untested with significant risks.
The strength of a public blockchain, which Ether claims to be, has always been the irreversible characteristic of any transaction. Once a transaction has been confirmed it cannot be unwound by any individual or group – this is the very strength of Bitcoin and why attempts to replicate Bitcoins’ benefit structure using private blockchains is a flawed premise – while private blockchains provide benefits of efficiency for member organisations to transact business together without holding counterparty risk, they are by nature limited in their scope, not designed to ‘include’ but exclude participants. In other words they are designed to benefit the “elite few” who run the private blockchain, for instance a select number of banks who wish to extend their cartel with greater efficiency but no benefit to the greater public.
If the Ethereum Project decides to roll back the Ethereum blockchain they simply confirm the charge that is often levelled at Ethereum – it is not a public blockchain at all but a private blockchain developed to move control of the financial industry from one set of hands into another, benefiting Vitalik Butterin and his buddies.
While many would argue that there is no harm in rolling back transactions that were a deliberate exploitation of a weakness in Slock.It’s implementation of the scripting language. You don’t have to dig too deeply to recognise the flaw in this logic.
Is the Ethereum Project going to roll back all future hacks – or just those involving members of the inner circle? What constitutes a hack? One of the proposed uses of Ether smart contracts is an exchange (say for Bitcoin) – If the smart contract incorrectly makes multiple sales at a low price which people identify and exploit – will those transactions be rolled back as well?
Perhaps a smart contract takes place between 2 organisations, one of which is inside the favoured circle of the Ethereum Project – let’s say they decide they don’t like the terms and want it rolled back – does their request get actioned while the other organization foots the bill?
What quickly becomes apparent is that once you lose the irreversible characteristic of the transaction; When it is no longer an independent network that confirms transactions you no longer have a trustless P2P network – you have crony capitalism and you are simply perpetrating the worst characteristics of the old world financial industry order.
This event represents a critical decision point in Ethereum’s evolution. Do they go down the route of a distributed P2P network with irreversible transactions (which probably means abandoning proof of stake in favour of proof of work) or do they go down the route of a private blockchain with control retained by the select few?
For our part the First Global Credit company will continue to allow holders of Ethereum to use it as collateral for stock and futures trading but, for the time being, our Smart Contract work will remain focussed on Bitcoins’ capabilities. Ethereum, for us, is still a work in progress which we will continue to monitor with interest.
At 36, Paul Keane is an ‘old hand’ in the young world of digital currencies. He’s an extremely active member of the bitcoin community a member of the Bitcoin Foundation, he also belongs to 2 chapters of Michigan Bitcoiners, Detroit M.B. and Ann Arbor M.B. as well.
Cryptographer, API developer, bitcoin miner since 2011, bitcoin evangelist and altruist, Paul is happy to reach out and assist people who are serious about digital currency. Along with friends he is working on a number of web-based digital currency projects and you can catch him on social networks like Google plus, Facebook and LinkedIn.
Paul is a member of the First Global Private Trading Group. Members of the group are provided with part-funding by FGC and limited risk. The goal is to develop talented young traders and help them develop their skills, make money and enliven FGC’s growing community of traders.
Paul approached First Global with a number of really interesting stocks he wanted added to the platform. His stock picks are really well thought out so I asked his permission to share them with you which he graciously granted. Here’s what Paul has to say about his choice of interesting stocks to trade.
☆Palo Alto Networks – NYSE Symbol PANW – This is a monster. Pricy, but the P/E on it is extremely high plus it’s undervalued. That as perfect as you can get. I have it hitting 195 ish by December. They just posted their largest revenue rise in 10 quarters. They are very innovative in Cyber Security.
☆Box – NYSE Symbol: BOX – A very innovative cloud storage firm. Have had around 42% growth since going public this year, but it’s still cheap and the valuation is huge. They do a large amount of business with large corporations down to small business and the general public. Had revenue for Q2 at 69 million, original valuations put Q3 at 74 million in revenue but new projections are right at 77 million in revenue dollars.
☆Celgene – NASDAQ Symbol: CELG – A Biotech company with a P/E of 46.72, my figure, undervalued and so very high P/E, it will be one I will be involved in around October. Though it’s cheap enough now to make small gains.
PK: These next two are a direct result of APPLE’s new/old products being released, there is one you have listed on the FGC site that will boom with this launch, ACTIVISION BLIZZARD. No need to explain that one.
☆Electronic Arts – NASDAQ Symbol EA – Games have been developed for the conference and Apple has made a large order for games to be bought through iTunes. [I think it] shall take off in a couple weeks when the new os9 is released with the iPad Pro and iPhone 6s & 6s plus. Update will allow last year’s iPhone 6 & 6 plus full use.
☆Adobe – NASDAQ Symbol ADBE – FINALLY Adobe is compatible with Apple. Very, very high demand. Also the new software is going to be fully compatible with Windows believe it or not. The two giants did a presentation together. Steve Jobs is rolling in his grave.
Paul can be contacted through his Linkedin Account or Facebook page.
Would you like to apply for a position in the Private Trading Group? Email firstname.lastname@example.org for further information.
I’ve been quiet for the past 2 months about predictions because I strongly believe that if you have nothing of value to say then don’t waste peoples time. However, after 2 months of quiet, I thought it was time for an update.
After giving us the opportunity to get long a 50% position at an average price of 223 the market has done nothing but meander back and forth. This behaviour pattern is not uncommon in a market after a period of high volatility and simply signifies a period of value testing – does the market feel fairly priced at this level?
We now need to consider what to do with our small 50% long position.
On the upside I will be extending my position to long +100% if we break above 330 (The market is currently trading at 260 at time of writing). This is a pivot high following the reaction to the 166 lows back in early 2015 and breaking this should see a period of sustained higher price action. On the downside I’m no longer willing to see a loss on this small position so look to place a stop below the recent congestion level at 230.
A final note of caution, recent market behaviour will have made people lazy with stops and undisciplined in their trading; don’t get caught out! Quiet periods like this rarely signal when they end.
The end is likely to come as a sustained move in one direction or another; often not a dramatic surge but a consistent grinding move which will catch people out who are waiting for the retracement to close out. Stick to your stops and your trading discipline.
First Global Credit launches radical new service that turns a significant risk into a profit opportunity
February 16, 2015
First Global Credit’s Currency Switch Service helps shrewd traders turn a significant risk into a profit making opportunity. Customers of either Global Credit Service that allows the use of Bitcoins as collateral to make stock and commodity investments can switch the collateral in their account from Bitcoins into one of four Fiat currencies (USD, EUR, GBP of CHF) at the live market price.
The stock or commodity positions the customer currently holds do not need to be closed to perform the Currency Switch; the existing trades will just now be secured by the Fiat currency in the account instead of Bitcoins. When the trader feels the moment is right they can switch back into Bitcoins at the current rate. A modest transaction commission of 0.1 percent is charged if the trader is a price maker; placing an offer above the market or a bid below the market, or 0.2% if the order is ‘at market,’ wherever the market is currently trading.
Bitcoin’s price has recently been subject to substantial volatility and has at times in the last few weeks lost or gained as much as 20% of its value in a single day. This can expose those holding Bitcoins to considerable risk if they can’t divest themselves quickly enough to protect their portfolio’s value.
“The Currency Switch Service provides a benefit over other Bitcoin Exchanges by allowing our customers to actively trade both stocks and Bitcoin movements with the same collateral, doubling their opportunities and increasing the potential for portfolio growth,” stated Marcie Terman, Communications Director at First Global Credit. “This service supports both customers that want to enhance their returns and customers that are concerned about short term exposure to Bitcoin’s price fluctuation.
For more information including FAQ’s please go to http://firstglobalcredit.com/Services/Collateral-Currency-Switch-Service.
About First Global Credit:
First Global Credit is the world’s first Finance Company 100% focused on digital currency products. The company has been founded by financial service professionals with 35 years’ collective industry experience. The objective, to help our customers maximize the potential derived from their investment in the digital currency markets. To deliver those services with a stability and reliability not generally found in digital currency focused companies. We are committed to assisting our customers achieve their economic objectives and to do this our systems have been built using enterprise level technology and security. Our processes are designed to assure the privacy of our customers alongside the security of their assets. The company is committed to developing a stable and secure digital currency capital market; to provide an environment which will prove fairer, more accessible, and less costly for the public to transact business than existing banks and financial institutions.
Well…what a month. I hope you followed our advice and kept to your stop discipline which got us out of our tentative long position at 250 before the collapse down to 166. Since then we’ve kept out of the market to see what transpires.
Looking at the chart you can see that the trend is still down, so we should be playing this market from the short side. But there’s something in the way the market is behaving that makes me more inclined to still trade this from the long side – but very cautiously.
Our recommendation is to take a small 25% long position at the current level (226 as I write this) with a further 25% long at 220. Initial stops should be placed below 200.
On the basis of how quickly this market can move we will also give a short break recommendation. We will be looking to go short a full 100% of the way on a break below 160. We don’t believe this is the scenario that will unfold but if it does we can see a quick spike down a further $30 where we will look to cover our shorts (at the $130 level).
Happy New Year and another sweep down in the BTC price below 290. Followers of our recommendations should now have covered their tentative short position from the 342 level and be flat again.
This latest move down lacks conviction and backs up our central thesis that we are seeing long term bottoming behaviour in the market with this down move being a re-test of the lows reached in October (275 intra-day); rather than a new impulse move lower.
Stay flat for now until market sentiment becomes clearer. Our recommendation is to place a buy order (1/3 position) on a break back above 340. We don’t recommend placing a buy order at this level or below the current market level as falling markets have an uncomfortable habit of falling further and faster than people anticipate, better to buy after support has been established.
Good Luck for 2015
As 2014 draws to a close I find myself not just recalling the events of the past year but also looking ahead at the year to come. 2014 was a mixed year for Bitcoin; the ongoing post Mt Gox decline has fuelled the arguments of sceptics like Warren Buffet who “warned investors to stay away from Bitcoin, calling it “a mirage,” saying that, while it may be a better way of transmitting money, the “idea that it has some huge intrinsic value is just a joke.”
On the other hand merchant acceptance of Bitcoin has gone from strength to strength. This is no longer a collection of niche enthusiasts that accept bitcoin as a political statement; we have the “Standard Bearer” of merchants, Overstock integrating Bitcoin with their online payment systems as well as Microsoft, Expedia and Dell accepting Bitcoin as a way of increasing market share and accessibility to their customers.
There can be no doubt that Bitcoin is rapidly becoming an accepted form of transaction processing but where does it go from here? Most merchants who “accept” bitcoin do so in the same way a US company might “accept” EUR or GBP as a way to attract additional business. The transaction immediately converted into the base currency of the merchant. While this is a good first step towards the general acceptance of Bitcoins into the mainstream, we need to go further.
2015 needs to be the year that Bitcoin becomes more than just a transactional currency that is converted immediately into fiat to avoid value fluctuation risk. People and merchants need to have the confidence and ultimately a reason to hold onto their Bitcoins; and that reason shouldn’t be the hope of the value going up (nice as that is).
So what is needed to help Bitcoin make that leap from Transactional Currency to Investment Currency? Here are my 2015 predictions of the new developments we are likely to see over the next year.
- Deposit Capabilities. Holders of Bitcoins need the facility to place their bitcoins on deposit and get a secure return on that deposit in the same way holders of traditional currencies can deposit their cash in a savings account and receive interest on that deposit. (Low at the moment, but still a return).
- Investment capabilities. Holders of bitcoin need institutions where they can choose to invest their money in instruments or assets that carry a higher return than bank deposits, though obviously these investments will carry a proportionally greater risk. This is not exactly a prediction as these opportunities do exist though they are currently few and far between. But the facility to invest Bitcoins for a return needs to expand to include a range of opportunities that will suit the tastes of various investors. When the ability to invest Bitcoins exists, holders are less likely to run for the exit at the first sign of trouble.
- Bitcoin denominated Bonds. While there have been sporadic attempts to launch various “Bitcoin Bonds” they have been limited in scope and appeal. We need, as a community, to establish a viable framework where companies can issue bonds denominated in bitcoin (and interest repaid in bitcoin). For this to be successful there needs to be a viable aftermarket where bonds can be traded so holders are not tied in for the full term of the loan.
- The publication of the Bitcoin interest rate curve drawn from multiple sources so it can be used as a reference to structure deals and issues.
Many members of the Bitcoin community still see these developments as the unnecessary intrusion of traditional financial doctrine into the world of digital currency – I would frame it differently. Without these developments Bitcoin will never evolve into a method of exchange, fully independent of Fiat currency.
Having the majority of transactions undertaken in Bitcoins immediately swept into Fiat currency becomes a self-fulfilling prophecy that keeps bitcoins transfixed at the ‘tool’ stage; a low cost way to affect transactions that circumvents expensive bank charges – but not a true currency.
Only when companies can securely invest surplus digital capital and raise funds in bitcoins will people see a reason to hold their wealth in Bitcoins. Then we will see Bitcoin take its place as a genuine independent Investment Currency alongside Government controlled Sovereign Currencies.
So will the community take that leap and develop the infrastructure needed to take Bitcoins to the next level?
First, we need to move away from the simple “exchange” model as the only way of generating profit from Bitcoin investment. Speculators are a necessary part of the financial eco-system but this should only form a small part of the overall picture. Other opportunities need to be made available so holders of bitcoin can generate a return without rapidly moving in and out of the currency, promoting volatility and short holding periods. We should be encouraging longer term holding and stability rather than aggressive speculation.
Second; we need companies involved in the bitcoin finance industry to come together and develop a framework that will give customers the assurance they need that they can safely invest their capital – this is not a call for external regulation, on the contrary, the shambles left by the mainstream financial industry over the last five years is ample demonstration that external regulation is not the answer. It would be far better if we could transform the idealism of the Bitcoin community into a self-regulatory framework focused on long-term profitability, not just a quick grab at short-term profits. If this can be achieved it will put us in a good position to maintain only “light touch” controls from regulators.
Third; companies that are serious about moving Bitcoin forward from a transaction currency to an investment currency need to start working together to provide investors with a consistent point of comparison. Not everything is a zero-sum game; by co-operating and offering standard benchmarks we can start to build confidence in the marketplace and allow customers to make informed decisions between the products on offer.
At First Global Credit we have started discussions with a number of partners about how we can merge services to provide something of more value to our combined customer base and provide consistent benchmarking and security. While we may miss out on some potential in the short term we believe this will grow the overall size of the market and benefit everyone in the community as standards are adopted.
One thing we can all be sure of, 2015 will see dramatic developments in the Bitcoin marketplace; some great innovations will be introduced and further progress made. I am passionate about the potential of Bitcoin, but my belief is that for that potential to be realized Bitcoin must become more than a mechanism of trade, it must become an investment currency. I am equally sure that this is not something any single company can bring about on its own – Bitcoin financial service companies need to start working together for the good of the overall Bitcoin community and the security of their customer’s investments.
Have a great 2015.
CEO First Global Credit
What To Do with BTC’s Price Decline
Bitcoin Market Advice for 17 December 2014
Last week we announced our expectation that Bitcoin value was in decline. Those following our recommendation should now be short a small or 1/3 position, taken just below the $342 level. We do not anticipate the market holding at $310. Rather we are expecting a push below $300 to retest the lows established in October.
Do NOT add to this short position at these levels (the market is at $320 as we write this) as our central thesis is that this is still longer term base forming. Plan to cover the small short position at the $290 level if the market gets down to that point.
On the upside, plan to cover the short position and go long a 50% position if the market breaks above $360; if this happens we expect the market to be wrong-footed and could a see significant number of traders covering their shorts. Unless this happens stay short and look to flatten out at $290 as described above.
First Global Credit Management
Nine days of practice trading time remain until the competition starts!
November 22, 2014:
First Global Credit yesterday announced the details of its “Ticket to Prosperity” competition in front of room jammed with avid Bitcoin Traders at The Bitcoin Center of New York located at 40 Broad Street just steps away from the New York Stock Exchange. The competition takes place using First Global Credit’s Active Trader Service Platform and enables individuals to compete for the opportunity to become a market trader fully backed by First Global Credit.
People can sign up for a free demonstration paper trading account immediately and then when they log into the First Global Credit site on December 1st, they just need to select the Competition account. The Demonstration Paper Trading Account enables users to try out the trading system using simulated Bitcoins as collateral to make investments in stock, stock market indices, ETFs and precious metals. Although the investments are not “real”, the simulation uses live price data and fee structure so reflects exactly what would happen in an equivalent live environment. “This includes an increase in trading power if the price of Bitcoins goes up while they are trading.” Says First Global Credit Business Development Director Marcie Terman. “This service is about maximizing the earning potential of your Bitcoins while retaining them for their long-term growth potential.”
First Global Credit will provide all competition participants with 100 ‘demonstration’ Bitcoins to use as security during the competition. Every day the top ten traders will be reported on the First Global Credit’s Facebook page and Twitter feeds. The winner will be announced 12 noon GMT Saturday, the 17th of January with access to the live trading account to commence the following Monday.
The competition will run from 1st December 2014 to 16th January 2015 and is open to anyone regardless of age. “Of course, we will have to find something to replace the Porsche Boxster lease that is provided when the star trader reaches Level 11 of the trading program if they can’t legally drive; like in the case of a super talented 12 year old for instance,” laughs Terman.
For full competition terms and conditions please go to Competition Terms for full information.
First Global Credit launched its Bitcoin investment service at the Inside Bitcoin Las Vegas at the beginning of October. That service, designed for people that prefer a buy and hold strategy has had clients using actual Bitcoins as investment collateral almost from day one and has been gaining dozens of users on a daily basis.
The website, www.firstglobalcredit.com makes it possible for those who have mined, purchased or received Bitcoins in payment to maximize the potential of their holdings by using them as security on investments in world-wide stocks, ETFs, commodities and stock markets indices. This is the first of five major service launches planned for 2014-2015, and the first of many investment options that will become available through First Global Credit over the next few months.
How to Participate
1. Go to http://www.firstglobalcredit.com/register and enter an email address to create a demonstration paper trading account. You will receive a temporary password at your email address which should be used immediately to log into the account. ‘Demonstration’ Bitcoins can be added to the demonstration account to be used as collateral for paper trades.
2. On the first of December when logging onto the website, select “Competition” from the pull down menu to start trading. Each competition account is seeded with 100 synthetic Bitcoins to be used for the full length of the contest. Lose them and you are out. Grow them to a value greater than any other trader and you win.
3. Your performance can be monitored on the Trade Statement tab of the competition platform. To see if you’ve made it into the top 10 subscribe to the @FirstGlobalCred Twitter feed.
Do you have the right stuff to make it using Bitcoins to make bit returns on investment?
Do you have what it takes to make it as a professional trader? Anyone who thinks they have the right stuff is invited to participate in First Global Credit’s Ticket to Prosperity Trading Competition. The competition which kicks off December 1st and runs for 6 weeks will be formally announced at the Bitcoin Center of New York, 40 Broad Street on the 20th of November at 7PM.
The competition will use a demonstration version of First Global Credit’s Active Trader Service, which has been created for people who want to use their Bitcoins as collateral to trade stock markets and commodities. Everyone participating in the competition gets 100 synthetic Bitcoins and access to over 50 fast moving markets. The demonstration system mirrors the Live Active Trader using live prices and fee structures to emulate a real trading environment. The goal of the competition is to find the most talented trader capable of making the most of their 100 synthetic Bitcoin collateral.
“This competition mirrors the real world where you have a lot of smart, talented people with access to the same charts and market information all trying to make the most of their Bitcoin investment,” says First Global Credit Business Development Director Marcie Terman. “But there are certain people who have the aptitude to thrive in this high pressure environment and really perform. Our goal is to find the best of the best.”
And that’s the real significance of the competition. “Not only is First Global Credit introducing the public to a powerful money making resource with the Active Trader Service, we are looking for untapped talent in the Bitcoin community,” continues Terman. “Because the Monday after we announce the winner of the competition we will be providing that gifted individual with access to a fully funded trading account. The proceeds to be shared between First Global Credit and the trader, the risk to be shouldered by First Global Credit.
The tradition of fostering trading talent goes back to the days of open outcry pit trading when trading banks would back skilled beginners at the start of their careers and share the profits,” says Terman. “This strategy was successful 30 years ago and First Global Credit will replicate that successful strategy today.”
The competition will be held on First Global Credit’s Active Trader Service. The Active Trader launch follows the release of the now popular Bitcoin Investment Service first made available at Inside Bitcoin Las Vegas 2014. “That service was designed for people that use a buy and hold strategy. Active Trader is more appropriate for people that prefer a more dynamic trading style” says Terman.
Full details of the competition rules will be announced on the 20th of November, with actual trading commencing on the 1st of December. Anyone interested in signing up for the competition can create a demonstration account immediately at www.firstglobalcredit.com/register. When logging into the account on the first of December, they will simply choose to log into the competition platform instead of the demonstration account. It is free to enter the competition.
For further information email: email@example.com