Three types of cryptocurrency tokens explained as quickly as possible

Welcome to Hard Fork Basics, a collection of tips, tricks, guides, and advice to keep you up to date in the cryptocurrency and blockchain world.

Considering there are well over 2,000 cryptocurrencies on today’s market, the average cryptocurrency investor faces being veritably overwhelmed by choice.

That certainly sounds like a lot, but pretty much all cryptocurrency falls into one of three token categories: currency, utility, or investment.

Each group requires different rules and regulations to ensure their issuance and exchange is above board with government regulators. Depending on the country, cryptocurrency startups may also have to register their business with regulators depending on the token issued.

So, let’s take a look at what each of the classifications mean, quickly.

Currency tokens

This is the original (and most straight-forward) form a blockchain-derived token can take.

Tokens can be classified as currencies if (and only if) they were created entirely as a means of payment for goods and services external to the platform running the token.

For example, Bitcoin is seen as a currency as it was created with the intention of replacing fiat money. As such, Bitcoin holders are able to use their Bitcoin to purchase goods and services from shops, online retailers, and other merchants.

It’s worth noting that the SEC has deemed both Bitcoin and Ethereum to be currencies, after both were found to be too decentralized to be anything but.

Utility tokens

These digital assets are built to provide investors with something other than a means of payment.

This typically comes in the form of access to a particular product or platform. For example, many cryptocurrency exchanges have issued their own native cryptocurrencies for customers to use to reduce trading fees.

The primary difference between a currency and a utility lies in the fact that holding a utility token provides the investor with access to a function provided directly by the businesses who issued it.

In our cryptocurrency exchange example, the holder is only granted access to reduced trading fees through the use of that token.

Most tokens created on blockchains (like EOS and Ethereum) are essentially utility tokens, as each one is intended to be used natively on a single platform, such as a decentralized app (dApp).

Investment/asset tokens

Investment tokens are perhaps the most complicated to classify. Inevitably, most become securities in the eyes of financial regulators like the SEC and FINMA.

Tokens found in in this group are the assets that promise a positive return on their investment (besides profits generated from rising market prices).

Such returns are usually distributed by the platform itself or the company that created it.

The most famous example is the MakerDAO – an autonomous, smart-contract powered blockchain organization that reinvested profits from its ICO to generate more profit for holders.

This was deemed to be the critical factor that allowed the SEC to retroactively classify the digital assets issued by MakerDAO as investment tokens (and by extension, securities).

Well, there you have it! The three major types of cryptocurrency assets. It’s worth mentioning that they can also come in hybrid forms, such as utility/investment tokens, but that’s for another day.

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Hackers infect official Make-A-Wish site with cryptocurrency mining malware

It seems crypto-jackers have absolutely no ethical standards. After governments, universities, and technology giants, even charitable organizations are finding themselves at the receiving end of cryptocurrency malware. The latest victim is the US-based Make-A-Wish Foundation.

Researchers from security firm Trustwave found that one of the foundation’s websites – worldwish.org – was compromised with cryptocurrency malware known as CoinImp. The malware infects the website with a malicious script to steal visitors’ computing power to covertly mine cryptocurrency.

A screenshot of Make-A-Wish Foundation’s website showing the CoinImp mining script. Source: TrustWave.

The researchers note the origin of the malware is likely Make-A-Wish’s decision to use an outdated version of Drupal’s content management system.

Earlier this year, researchers reported hackers had targeted nearly 100,000 Drupal sites as part of a malware campaign that later became popular as “Drupalgeddon 2.” Trustwave suspects the Drupalgeddon hackers might be responsible for the attack on Make-A-Wish too.

According to Trustwave, the mining script has since been removed from the Make-A-Wish website.

Crypto-jacking scripts have become a menace over the past year, infecting websites all across the globe.

Hackers were able to exploit 400 prominent websites using outdated versions of Drupal, including those of the US National Labor Relations Board (NLRB), Chinese tech company Lenovo, Taiwanese network hardware maker D-Link, and the University of California, Los Angeles (UCLA).

It’s not only Drupal sites at risk though. More than 300,000 routers in India and Brazil were found to be infected with cryptocurrency mining malware earlier this year.

A research conducted by McAfee Labs found that more that 2.5 million new cryptojacking scripts were installed just in the second quarter of 2018.

It’s worth pointing out that mining scripts aren’t always planted by hackers. Charities, including Unicef and Change.org, used it on volunteer-basis to raise money for their initiatives — although critics raise doubts on its effectiveness.

If you’re concerned about your computer being unscrupulously used to mine cryptocurrencies, here’s a handy guide on how to stop it.

Published November 19, 2018 — 16:42 UTC

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Scaling Bitcoin: A beginner’s guide to the Lightning Network

Welcome to Hard Fork Basics, a collection of tips, tricks, guides, and advice to keep you up to date in the cryptocurrency and blockchain world.

The Lightning Network is getting so big that its capacity has recently surpassed the $1.5 million mark.

Its proponents peg the Lightning Network as Bitcoin’s most promising scaling solution. It’s said to be able to handle 50,000 transactions per second – a figure nearly double what VISA claim to process.

But if the Lightning Network isn’t a blockchain, what is it and how does it work? This article will try and answer these questions as quickly as possible, but first it’ll help to have a little reminder about the problem it is trying to solve.

A reminder about Bitcoin’s scalability ‘problem’

Bitcoin BTC transactions are verified using a process called proof-of-work, while it’s great at confirming transactions, it’s kind of slow and cumbersome. By design, Bitcoin transactions take a while to verify – in comparison to our world of instant gratification at least.

As Bitcoin has grown in popularity, the slowness of its verification process has become the focus of a contentious debate about how the Bitcoin blockchain should be “scaled” to increase its throughput. There are numerous solutions being developed, and the Lightning Network is one such proposal.

So, what is it?

You might often hear people talk about the Lightning Network as a “second layer” payment protocol. Basically, this means it exists “on-top” of a blockchain. The main principle behind the Lightning Network is that not all transactions need to occur on the blockchain.

Essentially, the Lightning Network allows two people to transfer cryptocurrency directly, rather than via the main Bitcoin blockchain.

Say David and I are regularly paying each other back in Bitcoin for the beers we’re always buying each other. Rather than paying each other back directly, using conventional (and slow) Bitcoin transactions, we could set up a Lightning Network payment channel.

When we setup this channel, what we’re actually doing is setting up a special kind of wallet that only we can access. Initially, we would both put some Bitcoin into that wallet and use those funds every time we want to quickly send some coins to each other.

Every time I buy David a beer, he can pay me back quickly and directly with minimal fees using this channel. When we decide to close this wallet our final balances are settled using Bitcoin’s proof-of-work blockchain.

Effectively, the Lightning Network operates by generating IOUs between the parties of a payment channel. Technically, no one actually owns the money held in that channel whilst it is open.

When it’s closed, all of those IOUs are settled, and the Bitcoin balances of all relevant parties are amended accordingly with the most up-to-date transaction record, ensuring their validity.

Sounds great, what’s the catch?

While taking payments off the blockchain might lower transaction times and fees, it also introduces some new challenges.

If a Lightning Network node “goes down” the payment channel will automatically close. Any funds held in that channel will be updated and the remaining balances sent to the users of that channel using the blockchain. So, if node failures became common it could make using the network quite frustrating.

As Lightning nodes need to be online all the time to keep the payment channels open, “cold storage” of funds held on the Lightning Network is not possible. With that in mind, it would seem the Lightning Network will only ever be suitable for low value transactions.

Also, by operating “off-chain” the Lightning Network sacrifices some of the security associated with a cryptographically secured decentralized system. Earlier this year developers warned that the Lightning Network could be susceptible to denial of service attacks as a result.

To deliver a more robust system, the Lightning Network may end up creating a more centralized payment network. Given that blockchain and Bitcoin is supposed to be decentralized, the jury is still out on whether this is a politically sustainable strategy.

Published November 19, 2018 — 15:39 UTC

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Asus and Gigabyte left with mining hardware surplus as crypto-hype dwindles

It seems the cryptocurrency hype from last year has left tons of hardware manufacturers with more motherboards and graphics cards than people care to buy – and things might get even worse in 2019.

Asus and Gigabyte are purportedly struggling to unload excess hardware stock now that interest in cryptocurrencies and mining has significantly dwindled, DigiTimes reports.

Fooled by the temporary boom in the cryptocurrency market, Taiwanese manufacturers ramped up production for mining hardware in the beginning of the year. Unfortunately, following a sudden dip in cryptocurrency prices and a slew of complications from the prolonged US-China trade war, interest in mining hardware seemingly disappeared in the third quarter of 2018.

Indeed, Asus saw a 43-percent drop in earnings in Q3 compared to last year, and Gigabyte recorded its lowest quarterly level since 2008. MSI seems to be the only manufacturer that is doing alright, posting a 6.6-percent loss for Q3 year-over-year.

An abundance of cryptocurrency mining hardware

Taiwanese manufacturers are hardly the only ones dealing with surplus in hardware.

Nvidia recently reported a huge decline in graphics card sales. In fact, the company went as far as saying it is done with the mining business once and for all. “We believe we’ve reached a normal period as we’re looking forward to essentially no cryptocurrency as we move forward,” Nvidia CFO Collette Kress said.

Rival AMD is also trying hard to push mining hardware. The company recently kicked off a promotional explainer page to familiarize people with the various “use cases and applications” for blockchain – other than cryptocurrencies, that is. But really, the page read more like an ad than an actual explainer.

Published November 19, 2018 — 15:58 UTC

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Kraken opens Bitcoin Cash SV trading, warns it’s an ‘extremely high risk investment’

Earlier last week, the highly controversial Bitcoin Cash hard fork finally happened, resulting in two separate chains — Bitcoin Cash BCH ABC (BCH ABC) and Bitcoin Cash SV (BCH SV). But there can only be one real “Bitcoin Cash,” and the war to claim to that title is intensifying. As far as Kraken cryptocurrency exchange desk is concerned though, there’s a clear winner.

In a blog post published yesterday, Kraken warned its users against investing in BCH SV, calling it an “extremely high risk investment.”

Kraken stated that while it’s crediting its clients with BCH SV and enabling its trading, the cryptocurrency doesn’t meet its usual listing requirements.

The exchange desk warned users of several red flags with SV, such as the lack of any known wallets supporting replay protection, support in major block explorers, and constrained supply due to limited wallet support.

Kraken suggests that the SV representatives tendency to be “openly hostile towards other chains” will also work against its interests. The exchange has given no names, but it seems to be alluding at Craig Wright — nChain’s founder and the main force behind SV — who threatened to drive BCH’s price down to zero two weeks before the fork.

Kraken alerts its users that some of the whales have indicated their intention of dumping all their SV as soon as possible, which could result in a massive price drop.

It is worth noting that cryptocurrency mining giant Bitmain’s CEO — who is known to hold a significant amount of BCH — publicized his intentions to sell all his SV on Saturday.

Kraken also warns its clients that they will have to bear any custodial losses of SV taken from attacks originating with nChain or its affiliates, as all losses will be socialized among Kraken BSV holders. “Given the volatile state of the network and threats that have been made, Kraken cannot guarantee perfect custody of BSV,” the blog post said.

Bitcoin Cash ABC has been listed as Bitcoin Cash (BCH) by Kraken, while Bitcoin Cash SV has to make do with the BSV ticker. Deposits and withdrawals of both BCH hard forks remain frozen on Kraken (like the rest of the exchanges) until the two chains stabilize.

As of press time, Bitcoin Cash ABC is trading at $230 while SV is trading at $86.05 according to CoinMarketCap data.

Published November 19, 2018 — 14:44 UTC

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This Bitcoin-themed cover of Rebecca Black’s ‘Friday’ is somehow worse than the original

Greek lore tells the tale of Medusa — a fearsome monster who could turn mortals into pillars of stone, should they be unfortunate enough to gaze upon her. For the digital age, there’s something similar. Check out the Bitcoin BTC remix of Rebecca Black’s ‘Friday,’ from cryptocurrency comedy songwriters (that’s a thing, apparently) Crypto Finally.

[embedded content]

At least, I think I’ve turned stone. I’ve barely moved since I heard it. Like a Windows 95 computer trying to open a 100MB PDF file, I’m completely frozen, desperately trying to process what I just heard.

Was it real? Am I hallucinating? Did I snort some ketamine and touch the void? Is the bridge to the chorus really “They don’t take cryptocurrency. They should take cryptocurrency. Excuse me sir; what currency will you take?

Should you want to sing along at home, Crypto Finally helpfully left the lyrics in the video bio.

Momma freaks out, day after thanksgiving
Drags me to the mall, gotta get them sales
Christmas coming up, gotta catch them deals ‘heck I ́ m doing here?
I don’t use cash!
What century are we in?
Get with the program!
These shops are so outdated
Ever heard of crypto? I use bitcoin!
They don’t take cryptocurrency
They should take cryptocurrency
Excuse me sir; what currency will you take?
Its Bitpay
Bitpay
Gotta get with my Bitpay
Everyone’s adopting bitcoin, don’t be a weeirdo
Bitpay
Bitpay
They won’t accept my Bitpay
What’s the point of Black Friday sales fiat losers
Robbing me, Robbing me, Yeah!
Robbing me, Robbing me, Yeah!
FUD, FUD, FUD, FUD
Try to get me to sell in the bear run
Once I ́ m at the mall, everything looks lame
I want an Orange Julius but it ́ s all the same
FUD, FUD, think about FUD
You don’t even take XRP?
You keep it, just keep it
I don’t need your smoothie, no
But dang it looks so good I want it super bad, though
They don’t take cryptocurrency
They should take cryptocurrency
Excuse me sir; what currency will you take?
Its Bitpay
Bitpay
Gotta accept my Bitpay
Everyone’s adopting bitcoin don’t be a weeirdo
Bitpay
Bitpay
They won’t accept my Bitpay
What’s the point of black Friday sales fiat losers
Robbing me, Robbing me, Yeah!
Robbing me, Robbing me, Yeah!
FUD, FUD, FUD, FUD
Try to get me to sell in the bear run
Please accept my Bitcoin
I don’t use no cash, no cash
Please please please take my Bitcoin, please take my Bitcoin
Your sales will go through the roof
Sooner or later you’re gonna have to
You’ll have to get with cryptocurrency
Bitpay
Bitpay
Gotta accept my Bitpay
Everyone’s adopting bitcoin don’t be a weeirdo
Bitpay
Bitpay
They won’t accept my Bitpay
What’s the point of black friday sales fiat losers
Robbing me, Robbing me, Yeah!
Robbing me, Robbing me, Yeah!
FUD, FUD, FUD, FUD
Try to get me to sell in the bear run

When cryptocurrency bubble eventually reaches zero, I hope the repo men take Crypto Finally’s microphones.

Published November 19, 2018 — 13:10 UTC

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Traders suffer huge losses as OKEx closes Bitcoin Cash futures early

Several high-profile cryptocurrency traders are posting major losses after the Bitcoin Cash hard fork, as the true impact of the controversial hash wars starts to make itself known.

Just as the price of the original Bitcoin Cash BCH cryptocurrency started to fall last week, major exchange OKEx abruptly ended $135 million worth of futures contracts, claiming it necessary to protect clients from the impending market volatility.

This forced the positions of some of the biggest whales in the cryptocurrency industry to be suddenly closed, leaving larger investment funds high and dry, Bloomberg reports.

OKEx is also noted to be the only cryptocurrency exchange to take these measures.

One trader, Qiao Changhe of Consensus Technologies, claims to have immediately lost $700,000 when OKEx closed its futures position at a loss. The fund, worth $5 million, says it will be scaling back the use of OKEx over how it handled the fork.

Four other traders also claimed to be following suit, with one filing an official complaint with the Hong Kong Securities and Futures Commission.

Curiously, in the days preceding the sudden closing of the contracts, OKEx issued an ominous warning to investors:

Due to the BCH hard forking in the coming future and hence the volatile movements in the Spot and Future markets, OKEx would like to remind all clients to focus on risk management, e.g. via lowering effective leverage ratio, in order to avoid undesired losses during the trading sessions before/during the hard forking caused by vicious market fluctuations.

The move, while not illegal or unprecedented, has served as a stark reminder of the unregulated nature of the digital asset market.

OKEx is currently the second largest cryptocurrency exchange by volume, with almost $850,000 in cryptocurrency being traded on its platform daily.

Published November 19, 2018 — 11:56 UTC

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Switzerland sets precedent with world’s first cryptocurrency ETP

We told you cryptocurrency-based exchange traded funds (ETFs) were coming.

Switzerland’s leading stock exchange has given the go-ahead for the world’s first cryptocurrency ETP, the Financial Times reports.

The ETP is called the “Amun Crypto exchange traded product (ETP)” and will be trading from next week on the “Six” exchange in Zurich.

The Amun Crypto ETP will track an index made up of five leading cryptocurrencies including: Bitcoin, XRP, Ethereum, Bitcoin Cash, and Litecoin.

Each of these coins will be weighted at 49.7 percent, 25.4 percent, 16.7 percent, 5.2 percent, and 3 percent, respectively. The fund holds a 2.5 percent annual management fee.

There is no mention of how the fund plans to address the recent Bitcoin Cash hard fork. But that’s what the management fee is for; to pay professionals to make that decision on behalf of investors.

Perhaps the best thing about this ETP is that its trading ticker is simply “HODL.” A not-so-subtle nod to cryptocurrency investors around the world.

While there are similar products on the market, from a legal point of view they are not true ETFs as they track only single coins rather than a curated fund, or are based around derivatives.

Indeed, Goldman Sachs launched a Bitcoin derivative earlier this year, based around a futures contract, and has been signing up selected investors.

Switzerland’s launch of a true cryptocurrency-based ETF undeniably sets a precedent. It could mark the start of more cryptocurrency ETFs making it to market.

Published November 19, 2018 — 10:44 UTC

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Moonday Mornings: The SEC has issued its first ever fines for ICO violations

There’s one thing that keeps us warm on cold days, Moonday Mornings. If you’re feeling a bit frosty this morning, here’s a wrap-up of the weekend’s cryptocurrency and blockchain news.

1. South Korean cryptocurrency exchange Zeniex is going to shut its doors and cease operations a mere five months after it launched. The company claim the decision was motivated by difficulties facing its proprietary token, ZXG. The worst part is that Zeniex might be the first of many as South Korean lawmakers look to regulate initial coin offerings (ICOs) this month.

2. One of the world’s largest cryptocurrency exchanges, Huobi, is setting up a communist party committee. This committee will be responsible for ensuring Huobi promotes the official Chinese communist party line. It will no doubt help build a closer relationship between the exchange and the Chinese government, which has historically been averse to supporting cryptocurrency.

3. Sim-swapping has been marked as “high priority” by California police. Earlier this year, professional gamer “Doublelift” had $200,000 worth of cryptocurrency stolen through an alleged sim-swap hack.

4. Chelan County in Washington, US is proposing a new pricing scheme for its energy suppliers that would see cryptocurrency miners charged more for the electricity they use. It’s all in the name of trying to ensure the county’s grid isn’t overloaded.

5. For the first time ever, the SEC has issued penalties to two ICOs that had violated securities registration regulations. It looks like it worked too. Both companies have paid the fines, registered their tokens as securities, returned funds to investors, and will report to the SEC. With so many ICOs thought to be operating illegally, this is likely to be the first of many that are hit with fines from the regulator.

6. After last week’s tumultuous Bitcoin Cash hard fork, some top exchanges are already accepting both coins that spawned as a result. But it seems Coinbase are still waiting until it thinks the time is right.

So the Bitcoin Cash hard fork war has simmered down to just a dull roar, but there’s still lots going on in the world of magic internet moon money. Proof that this wild ride ain’t over yet.

Published November 19, 2018 — 09:55 UTC

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Twitter says the Bitcoin scam wave came from third-party app

Twitter has confirmed the series of cryptocurrency-related hackings on its platform originated from a third-party software provider – and not its own system.

In an email to Hard Fork, a Twitter spokesperson confirmed attackers exploited a third-party marketing solution to blast fake Bitcoin BTC giveaway links from a slew of verified accounts, including Google and Target.

Twitter refrained from naming the app in question.

The confirmation comes only days after a number of high-profile public figures and brands – including Google and retail giant Target – got their accounts breached to propagate malicious cryptocurrency giveaway links.

While Target initially suggested attackers had inappropriately accessed its Twitter account to push the Bitcoin scam to its almost two-million audience, it later backtracked its statement.

Contrary to its previous statements, the retailer clarified that hackers never directly accessed its Twitter account. Rather, Target told Hard Fork the hackers managed to post the malicious tweets by leveraging a third-party marketing app, authorized to post content on Target’s behalf.

The confirmation the hackings originated from a third-party app explains how the attackers managed to run the Bitcoin giveaway scam at such a large scale – and in such an organized manner.

Earlier this week, Twitter told Hard Fork it is working closely with affected companies in order to resolve the situation. Ironically, moments later Google’s G Suite account posted a malicious Bitcoin giveaway link.

Published November 16, 2018 — 16:44 UTC

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