Berkeley Blockchain Xcelerator Director on What DLT Startups Need to Succeed

The Berkeley Blockchain Xcelerator — an incubator for early stage distributed ledger technology startups at the University of California, Berkeley — recently launched its spring cohort, which includes startups seeking to fight COVID-19, launch a cannabis-themed massively multiplayer online game and create a reverse auction platform for loans.

Cointelegraph spoke to Jocelyn Weber, the director of the Xcelerator, to find out more about the resources the program offers to startups, success stories from previous cohorts and advice for startups looking to launch in the crypto space.

Cointelegraph: Could you give an overview of the engagement and resources available to startups participating in the Xcelerator?

Jocelyn Weber: Our mission at Berkeley is to provide education and opportunity creation for our students and for the teams that join us and the Xcelerator. 

So, we’re kind of a platform that serves two sides: the student community, which ranges from undergraduate to Ph.D. and faculty level; and then on the other side of the platform are the startups, which can come to us to find blockchain talent funding, entrepreneurial guidance partners and even users for their products.

On campus, we have blockchain researchers, the Blockchain at Berkeley student group and a variety of blockchain courses. We have workshops on campus from the Simons Institute for the Theory of Computing, which is led by Shafi Goldwasser, who is the co-inventor of zero-knowledge proofs.

We have an ecosystem calendar now on the Xcelerator website that shows you kind of all the activity that’s taking place on a month-to-month basis. And a lot of that activity is open to the community and anyone can join.

We invite our startups to engage in these activities with us on our campus, and we mix in people from our network, which includes venture firms and corporates such as Samsung, Next and Oracle. 

CT: Can you give some more examples of the venture capital firms and crypto companies that are in UC Berkeley’s network?

JW: We’ve had Harmony, Near, Cosmos, Affinity and Polkadot all speak on campus over the last year and a half. We also involve exchanges, regulatory and legal advisors, and a host of mentors. We also have a Blockchain at Berkeley student fellowship program that pairs some of our top blockchain Berkeley students with each Xcelerator team.

“To stimulate the interaction among all these stakeholders, we invite them to our open monthly meetups, to speak on panels or in speaker sessions and, when appropriate, to mentor directly with the teams or hold office hours.”

Our accelerator also draws from our Berkeley Entrepreneurs Association network to teach a range of topics, including customer discovery, marketing for startups, design thinking and how to best interact with VCs in Silicon Valley. We’ve also had close to eight VC panels or VC speaking sessions. Those have included Blockchain Capital, Monday Capital, Future Perfect Ventures, Coinbase Ventures, Robinhood Crypto and Dekrypt Capital.

CT: When assessing applications from startups, what are some of the things you look for when identifying teams/projects that are of high quality or have strong potential?

JW: We look a lot at “founder, problem, fit”: do the founders really have the leadership in their team with the experience, the blockchain background and the network to win in their market or use case?

We also want to see that it’s not technology for technology’s sake, that it really is a viable business. And we like to see some customer market validation data. Although it’s still early in the blockchain space, many of our teams have had a chance to go out and get early adopter customers. So we like to see that in the teams that we select.

We also receive recommendations from some of the projects that we are in touch with. Near, Ripple, Stellar, Parity and Polkadot have all recommended projects to us in the past, which is helpful because they certainly know in their own ecosystems who is doing good work.

CT: What are some of the biggest challenges that the Xcelerator has found blockchain startups frequently encounter?

JW: Market timing for broader adoption is a challenge that the entire blockchain industry is facing. Certainly, our teams see that. They have these early adopters and early traction, and what we’re waiting for is the broader market timing. 

Also, in some cases, the customers’ understanding of the technology. Sometimes you have blockchain being applied to a legacy industry that’s not familiar with the technology, and there is a little bit of education that needs to take place by the startup for these legacy industries so that they can understand the benefits of blockchain. So, you see a lot of customer education also being done by our startups.

CT: Can you share some success stories from previous cohorts?

JW: Leaf Global Fintech, a global virtual bank that helps refugees and migrants safely store and transport money across borders, was in our fall batch. They have launched and gained traction. They’ve also received a $225,000 phase one non-dilutive grant from the National Science Foundation in the United States. We were excited that they were able to raise that non-dilutive support.

PlayTable was in our first batch, and they raised over $3 million with a new token issuance that included investors like VeChain and Block Crafters. We also had Bitmark from our first batch raise $3 million dollars.

CT: Have many former cohort members been able to raise capital after participating in the Xcelerator?

JW: From our first batch, we had 12 teams in total. Three were student-led teams that primarily went on with education. We had one team that had done an initial coin offering and didn’t need additional funding, and eight went on to seek additional capital. Five of the eight have been successful in raising new capital. I hope that two more will raise in the next few months, as they were pretty far along in the fundraising process just before COVID-19 affected the U.S. and Europe.

From the second batch, there was RIPchain, or rest-in-peace chain. They are putting wills and trusts on the blockchain. A very young team of 17-year-old twins doing some great work. I expect we’ll hear more from them. 

Many of our other teams from that fall batch are still working on fundraising, as we ended in mid-December. With COVID-19, we will see some slowing of that progress, but I expect that a good number of them will go on to raise over the next 10 months. 

Finally, another key result that we’ve noticed is the hiring activity taking place. A new number of our UC Berkeley students at all levels are being hired by our startups, as well as companies that have sponsored events or spoken on panels. We’re really thrilled to see this opportunity creation through our network.

CT: What lessons has the Xcelerator learned since the first cohort, and what adjustments have been made to the program?

JW: It’s been just over a year, but we have made some adjustments. We were trying to follow semester boundaries, and that put us with a demo day in mid-December at the end of last year, which we learned was not an optimal time for venture capital engagement. So, we are changing that, and that’s why we’re starting in April and ending around October for our spring batch.

“We’ve also learned that involving the blockchain VC community on panels and speaking sessions on campus is really helpful to understand their perspectives, educate ourselves when we’re selecting teams, and also to educate our teams on where VCs are most interested and what their views are.”

So, it’s helpful to have that dialogue between the VC community, especially the blockchain VC community, and our teams.

CT: Do you have any predictions for the blockchain sector in the coming years?

JW: We think security in the decentralized finance space needs to be addressed for broader adoption. We also saw a very high volume of gaming from ghost applications in the current batch of applications.

“We are excited about the gaming space. We have four teams in the current batch working on gaming-related solutions or nonfungible tokens, and we think this is a great opportunity for broader consumer adoption of crypto and NFTs.”

And finally, like most of the industry today, we see that activity will move toward application-specific blockchains with architectures that are best suited for particular use cases. And then 12 to 18 months after many of these new layer one chains launch their mainnet, it will be very interesting to see what works well.

CT: What advice would you give to early startups or entrepreneurs who are thinking about building in the blockchain and crypto industries?

JW: I’d give the typical startup or new venture considerations: Ensure you have a scalable business model through the customer discovery process before you do extensive product development. Understand your market and the dynamics in that market extremely well. 

And build a network of potential investors, advisors, mentors and partners as early as possible in the process. We feel the network that teams establish is really key to their success. 

“If you’re a decentralized application, stay layer-one agnostic or flexible as long as you can, as some layer ones may end up being more successful or more appropriate for your solution in the long run.”

This interview was shortened and slightly edited for clarity.

Cardano’s Byron Reboot Goes Live, Paving Way to Shelley Mainnet

Proof-of-stake (PoS) blockchain Cardano (ADA) went live with its Byron reboot yesterday, March 30, as the project prepares its transition to the Shelley mainnet.

Announced by Cardano’s developer, the peer-to-peer technology firm Input Output Hong Kong (IOHK), the reboot involves a series of updates to major components of the Cardano network — the Cardano node, explorer, and Daedalus wallet backend, which is being spun out as a new version, Daedalus Flight.

A process, not an event

In an outline of the reboot’s significance, which has taken 18 months to complete, IOHK explained that the new design is, “modular, separating the ledger, consensus, and network components of the node, allowing any one of them to be changed, tweaked, and upgraded without affecting the others.”

In lieu of improving the existing code, the reboot was made by working “from scratch,” with all critical elements of the new Cardano node formally specified.

Changes to the wallet’s backend and services have been grouped together as “Adrestia,” offering exchanges and third-party developers to use a collection of independent, self-contained libraries to interact with the Cardano network. 

APIs have been extended and specifically designed with larger exchanges in mind, and Daedalus will now include Yoroi wallet support — thereby supporting features such as transaction filtering and parallel wallet restoration.

A new rolling release of Daedalus will provide scope for users to test the new node functionality and wallet backend and offer their feedback to IOKH, which has pledged to implement improvements in response.

Overall, IOHK claims the reboot will result in performance improvements and higher transaction throughput capacity — i.e. how much demand the network can manage in terms of transactions per second. 

The developers are also eyeing a reduction in barriers to entry by making the Cardano node more efficient in terms of memory usage, thus enabling users with lower-spec hardware to participate in the network and helping to ensure greater levels of decentralization.

IOHK describes the reboot as more of a process than a discrete event, noting that its “goal is to gradually and sustainably migrate the entire Cardano blockchain to working on the new node implementation, without any disruption or loss of service.”

Following this process, IOHK plans to focus on the Haskett Shelley testnet, including the onboarding of stake pool operators to incentivize them to prepare for running on the future Shelley mainnet.

Decentralization max

As reported, IOHK was founded by the mathematician, cryptographer and entrepreneur Charles Hoskinson in 2015. Also a co-founder of Ethereum, Hoskinson told Cointelegraph in an interview this February that his aim is to make Cardano 50 to 100 times more decentralized than Bitcoin once all its upgrades are implemented.

How Financial Models Could Move Bitcoin’s Price After the Halving

Tobias A. Huber is a researcher with the Department of Management, Technology and Economics at ETH Zurich, in Switzerland.

Every four years, the Bitcoin protocol halves the block reward that miners receive when they contribute a so-called “block” of transactions to the blockchain. Currently, the reward is 12.5 bitcoins per block. The next halving will occur, soon, in May 2020. 

Built into the protocol to control bitcoin’s inflation, the previous halvings have coincided with massive rallies. After the first halving, which occurred in November 2012, bitcoin’s price increased from $12 to more than $650. After the second halving in July 2016, the price accelerated to almost $20,000 in late-2017. 

See also: CoinDesk Report – Bitcoin: The Halving and Why It Matters

While it’s, of course, uncertain whether the next halving will accelerate prices, the halvings seemed to have driven bitcoin’s previous hype cycles. Naturally, the next halving has generated an intense debate whether it’s already priced in or not. 

A popular model that’s often evoked in these debates is the Stock-to-Flow model. It models the price of bitcoin based on the so-called “stock-to-flow ratio,” which, initially, was used to value gold and other raw materials. By relating the “stock” – i.e., the quantity issued – to the “flow” – i.e., the annual issued quantity – the model derives a prediction of a bitcoin price post-halving of $55,000 to $100,000 (which would correspond to a market cap of more than $1 trillion). 

Unsurprisingly, the stock-to-flow model has attracted quite some attention after it was published in March 2019. Various attempts to falsify the model have been launched, and for bitcoin maximalists, it was another boost to their hyper-bullishness. 

See also: Bitcoin Halving, Explained

Now, according to the Efficient Market Hypothesis (EMH), prices are just incorporating new information. It assumes the market is sufficiently fast and responsive to converge on an equilibrium price that correctly reflects all external, or so-called exogenous information. All market-internal, or endogenous processes, in turn, are already reflected in prices. In this view, only exogenous inputs – for instance, an exchange hack, a central bank announcement, or a geopolitical event – can change investors’ anticipations and prices. Consequently, extreme events, such as bubbles or crashes, result simply from exogenous news that hasn’t been factored into prices yet. 

For proponents of the EMH, bitcoin’s supply schedule – which is encoded into the protocol and known since the inception of the network – constitutes endogenous information and should, accordingly, already be priced-in. And, most likely, most sophisticated market participants, such as market makers, have done so. But this doesn’t mean, the halving is fully priced-in. 

Financial modeling is not a hard science like physics. The models don’t just faithfully reproduce markets; they actively transform them.

There’s robust evidence that prices move too much compared with what one would expect from the EMH. Research shows only a small fraction of price movements can be explained by relevant news releases. Such findings suggest that price dynamics are mostly driven by endogenous positive feedback mechanisms between investors’ anticipations and prices – a phenomenon George Soros has described as “market reflexivity.” 

In my opinion, irrespectively of whether the stock-to-flow model is valid or not, whether one believes in the EMH or expects an epic rally that will trigger hyperbitcoinization, what’s often under-appreciated in these debates is the fundamentally reflexive nature of financial markets. 

Markets, and especially bitcoin, are reflexive phenomena. There’s a positive feedback mechanism between expectations and prices: expectations affect prices, which, in turn, influence traders or investors’ expectations and behavior. It’s this self-reinforcing positive feedback loop that’s also at the core of speculative bubbles and market crashes. 

See also: For Crypto Miners, Bitcoin’s Halving Could Mean a Doubling in Costs

Because of these reflexive dynamics, models can shape financial markets. Historically, there have been a few cases where a model re-oriented the market it’s supposed to model. The famous Black-Scholes options pricing model, for example, resulted in increased conformity between option price patterns and the model. That is, until the 1987 crash broke its validity. Similarly, current short-volatility strategies – which use volatility both as an input for risk-taking and a source of return – have a transformative effect on equity markets, as they result in a systemic suppression of volatility. 

Financial modeling is not a hard science like physics. The models don’t just faithfully reproduce markets; they actively transform them. They become what the famous sociologist Robert K. Merton called self-fulfilling prophecies. (Ironically, Merton was the father of Robert C. Merton whose infamous hedge fund Long-Term Capital Management became itself a self- fulfilling prophecy of financial doom.) 

So, bitcoin’s halving, or the predictions of models such as the stock-to-flow model, could themselves become self-fulfilling prophecies. This could result in a self-validating feedback loop of upward price acceleration. This isn’t to say that it will happen. But if enough investors and traders start to believe in them, the model and the reality might indeed start to converge.

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The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Thousands of Microsoft Servers Infected by Crypto-Mining Botnet Since 2018, Says Report

A malicious botnet has been targeting Microsoft SQL database servers to mine cryptocurrency for two years, according to a new report.

Guardicore Labs said Wednesday that in the last several weeks alone, the hackers had managed to infect close to 2,000 to 3,000 servers daily. As reported by Hacker News, the botnet has been dubbed “Vollgar” after the vollar cryptocurrency it mines alongside monero (XMR), and its “vulgar” way of operating.

The attack brute-forces passwords in order to access servers with poor security. Once in, it executes configuration changes allowing the hackers to run malicious commands and download malware binaries.

Entities across health care, aviation, IT, telecoms and education in China, India, South Korea, Turkey and the U.S. have all been affected, according to the report.

The network of compromised computers was used to host all of the attackers infrastructure, with its primary command-and-control server based in China, according to Guardicore. That itself had been compromised by multiple attackers, the firm added.

To help companies find out if their servers have been infected by this attack, Guardicore has released a script on GitHub.

In other security news, ZDNet reported earlier this week that QR codes – now ubiquitous across the bitcoin industry as a mean of making it easier to make bitcoin payments – have become another attack vector.

The shockingly simple attack saw malicious actors provide a purported service allowing people to create a QR code for payments to their bitcoin addresses. However, the address inserted was the attacker’s own.

Harry Denley, director of security at MyCrypto, discovered the scheme hosted on nine websites. According to the report, some $45,000 in bitcoin (BTC) has been stolen in the last month.

For the record, it’s advisable to avoid these sites at all costs: bitcoin-barcode-generator.com, bitcoinaddresstoqrcode.com, bitcoins-qr-code.com, btc-to-qr.com, create, bitcoin-qr-code.com, free-bitcoin-qr-codes.com, freebitcoinqrcodes.com, qr-code-bitcoin.com and qrcodebtc.com

Disclosure Read More

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

Mt. Gox Casts a Dark Shadow of Crypto’s Collapse — A Long Fight for Justice

Mt. Gox’s creditors will meet today, March 25, as part of a compensation process that seems to go on and on. This news comes at a unique time: amid a pandemic and with the world on the brink of economic crisis. It calls to mind again the 2014 collapse of Mt. Gox, the Japan-based cryptocurrency exchange that once accounted for 70% of the world’s Bitcoin (BTC) trading, a signal moment in crypto history.

In anxious times like these, people are inevitably asking: Can a failure of this scale happen again? Earlier this week, the crypto hedge fund Adaptive Capital announced that it would cease operations after suffering heavy losses during the March 13 crypto market meltdown. Other disruptions are expected as entire national economies shut down to fight the coronavirus.

A never-ending process?

Meanwhile, the claims and lawsuits against Mt. Gox continue. 

Mark Karpelès, the exchange’s former CEO, remains embroiled in an active lawsuit with investor Gregory Greene, as Cointelegraph reported on March 17. Coinlab, a former business partner, has a $16 billion (1.7 trillion Japanese yen) bankruptcy claim against Mt. Gox, up from the $75 million claim originally filed. The former exchange’s 24,000 creditors, meanwhile, are still waiting for a rehabilitation fund overseen by trustee Nobuaki Kobayashi to be distributed. More might be learned from today’s meeting.

Elsewhere, Fortress Investment Group raised its offer to purchase claims from Mt. Gox creditors. As of February, they are offering $1,300 per Bitcoin lost, up from $755 in December 2019.

It seems like a mess, and it’s easy to forget that Mt. Gox was once the largest cryptocurrency exchange in the world, handling more than 70% of all Bitcoin transactions. When it filed for bankruptcy in February 2014, it announced that 850,000 Bitcoins were missing, presumably stolen. A little over 200,000 Bitcoins were eventually recovered, and that’s basically what the parties are now fighting over.

Litigation persists

Is it surprising that lawsuits continue? The amount of Bitcoin stolen was worth around $473 million at the time, but those that were recovered would be worth $1.7 billion today. “I’m not surprised some people are suing,” said Johnny Lee, Grant Thornton LLP’s national practice leader for forensic technology services. 

One also sees more tort claims directed at crypto generally, Lee added. “It’s just the beginning of that trend.” Exchanges and other custodians are increasingly going to pay the price for failing to exert sufficient fiduciary duty. Pascal Gauthier, the CEO of Ledger, told Cointelegraph:

“Cryptocurrencies are a complex digital asset, and the sheer loss of that much money is something we’ve never seen before in the industry, so I’m not particularly surprised this case is still being litigated.” 

Moreover, the security technology used by Mt. Gox didn’t leave a particularly clear audit trail, which probably drew the legal process out further. When could Mt. Gox’s creditors eventually see some money? It may take a while still. In an interview with Cointelegraph last year, Karpelès outlined his belief that Coinlab is interested in prolonging the case in hopes of reaching a higher settlement.

“Painful lesson”

“It was a pivotal moment in Bitcoin history,” wrote Ian DeMartino in a chapter of The Bitcoin Handbook titled “Mt. Gox: Bitcoin’s Defining Moment?” He continued: “Arguably, it was the most important event so far, negative or positive, for the still-young currency.”

The world now has more than 200 exchanges — not just one — on which to trade Bitcoin and other cryptocurrencies. While that offers some comfort in terms of diversification, a number of these are still offshore enterprises operating without the benefit of regulation or transparency. Kim Nilsson, the chief engineer of WizSec who led an investigation into Mt. Gox’s “missing” Bitcoin, told Cointelegraph:

“Isn’t this the main painful lesson from Mt. Gox — that something that looks like the most authoritative and legitimate business of its kind could be a complete disaster on the inside and you might not have any idea until it was too late?” 

Could history repeat itself, then? Markus Veith, a partner in the audit practice at Grant Thornton LLP and the leader of the professional services firm’s digital-assets practice, told Cointelegraph: “Mt. Gox was hacked mostly in hot wallets. Today, 95% of our clients’ Bitcoins are in cold storage.” Some clients have gone so far as to put their private keys on flash drives that are stored in former military bunkers. These stored private keys should, at the very least, be impervious to hackers — i.e., people sitting at computers — and many other malefactors. 

The Mt. Gox hacks and the others that followed gave rise to a whole new awareness and new specialties, like crypto custodians — Fidelity Digital Assets, for example — added Veith. Many of today’s crypto exchanges also carry insurance against theft. Nilsson added:

“My gut feeling is that, on average, exchanges are probably more secure today, as some exchanges have taken things like audits and provable holdings to heart and have simply had much more time to build a proper business, but the general quandary of limited insight remains, with most exchanges running fairly opaque operations. A lot of people tend not to worry about the security or reliability of their chosen exchange until it’s too late, the same as before.”

A new leadership?

One sometimes forgets that the crypto world has existed for only 12 years. The early exchanges were created and run by programmers and other technical specialists, noted Lee. For instance, Karpelès, who acquired the Mt. Gox Bitcoin-exchange site from programmer Jed McCaleb in 2011, was a PHP developer. 

“The later ventures had more traditional financial services leadership and they often pro-actively sought regulation,” Lee told Cointelegraph. Instead of domiciling offshore in an effort to avoid regulation, “they assumed they would eventually be beholden to U.S. securities law and they sought to comply.”

“The first wave of entrepreneurs were evangelists for the technology, but low on quality,” Nick Shalek, a general partner at Ribbit Capital, told Reuters at the time of the Mt. Gox bankruptcy filing. With time, a more financially focused group of entrepreneurs emerged, intent on building more serious infrastructure around Bitcoin.

Reported volume is fake

That doesn’t mean today’s exchanges are model enterprises. “We’re still seeing news of exchanges or other businesses folding under pretty eye-catching circumstances — QuadrigaCX springs to mind,” said Nilsson, referring to the Canadian crypto exchange, whose founder reportedly died in late 2018 and which still owes around $145 million to its 115,000 creditors. 

In a May 2019 report, Bitwise Asset Management noted that Bitcoin trading volume adds to roughly $6 billion per day, “but under the hood the exchanges that report the highest volumes are unrecognizable. The vast majority [95%] of this reported volume is fake and/or non-economic wash trading.” Still, that same Bitwise research suggested that the Bitcoin market has significantly matured in recent years. Nilsson commented on the matter:

“These days there obviously exists a much larger number of crypto exchanges than back in the age of Mt. Gox, so there’s probably a wide spectrum with many superior businesses but probably also many worse than Mt. Gox, where the saving grace is just that all the eggs are no longer in one basket, so to speak.” 

Systemic risk?

Others note that while blockchain platforms like Bitcoin and Ethereum are decentralized, the crypto exchanges upon which they trade remain largely centralized with private owners. “To fix this, decentralized exchanges have been built,” wrote DeMartino. “They aren’t popular at this time because they tend to be slow, but they do work.”

“Most cryptocurrency owners today do not truly own cryptocurrencies,” observed Quinn DuPont in his book Cryptocurrencies and Blockchains. They instead trade them on privately owned exchanges. The wealth that has been stored on these “centralized services” presents a systemic market risk, he argues, “not unlike the ‘too big to fail’ banks of the 2008 global economic crisis.” It’s not as bad as when Mt. Gox was so dominant, but the risk remains. 

Could something as spectacular as the Mt. Gox collapse take place again? “On the technical front, absolutely,” answered Nilsson. “But there’s no longer one dominant exchange handling the bulk of all trading, so we’ll hopefully never see something with as large a potential impact as Mt. Gox did.” 

“Good governance, a clear audit trail, and account segregation — these are the essentials to avoid a Mt. Gox 2 scenario,” said Gauthier. DeMartino wrote on the matter, “The most positive thing that can be said about the Mt. Gox fiasco […] is that it did not kill Bitcoin.” Thus, people continued to invest their money in Bitcoin and other cryptocurrencies in ever larger amounts.

Still, that was then, and this is now. Surviving a single bankruptcy in a period of economic expansion — even a loss as critical as the Mt. Gox exchange in 2014 — is a different sort of industry challenge than outlasting a Great Depression. 

The good news is that with more than 200 exchanges spread around the world — many of them covered by insurance and many professionally managed — the risk of a total crypto calamity is significantly diminished when compared to six years ago.