Monthly Archives: August 2017

There ought to be a restraining order preventing the word revolutionary from getting too close to the word technology. The overwhelming number of apps, algorithms, and other inventions of code that emerge from week to week do not, in fact, transform society or even upend an industry, despite the marketing hype that often accompanies them. Nor do most wizardly machines, from Fitbits to VR helmets to Google Glass, truly alter everyday life or business practicesat least not right away. For all the heady talk of disruptionand we in the media are big on thattechnological advancement tends to be accretive, even slow.

But in this issue, a formidable trio of Fortune writersRobert Hackett, Jen Wieczner, and Jeff John Robertsdive into a technology that may well change everyday business in scores of industries: Its called blockchain.

Blockchain is the sophisticated accounting architecture that underpins Bitcoin, the cryptocurrency at the center of an investing mania of late. (As the Sept. 1, 2017 issue was going to press, the price of a single Bitcoin was around $4,200, up sevenfold from a year ago.) But as Chris Dixon, a general partner at venture capital firm Andreessen Horowitz, tells our own Mr. Hackett, the money stuffovershadows the more important technology story.

Indeed, the same distributed code-based ledger that drives Bitcoin has the potential to move any kind of data swiftly and securelyand, at the same time, make a record of that change, movement, or transaction available instantly and permanently to anyone. Thats a critical (and maybe even business-saving) advantage for companies in a host of industries, from finance to shipping to health care, as our reporting team shows.

Danish shipping giant Maersk is testing a blockchain that enables its customers to keep tabs on their cargo as it moves from port to port, while simultaneously letting Dutch customs officials and the U.S. Department of Homeland Security do the same. Walmart is testing its own trackerpotentially allowing it to identify every stop a product makes on its journey to a store shelf, which could be a game-changer in the event of, say, an outbreak of foodborne illness. (It could take mere seconds to identify whether a given package of mangoes or lettuce was at risk.)

Financial companies are testing blockchains as platforms for stock trades and interbank money transfers; diamond dealers are investigating a version to verify the provenance of precious stones; aircraft makers are exploring how a blockchain might track disparate parts of their jets as they make their way from machinist shop to tarmac. Even the state of Delaware, where the majority of Fortune 500 companies are incorporated, is experimenting with a system that may soon allow companies to register shares, undertake proxy votes, and do virtually all of their public filings via a blockchain.

The tech is hardly glitch-free, as Wieczner relates in her gripping tale of high-tech cryptocurrency heists (see The 21st-Century Bank Robbery ,). But having witnessed what the advent of digital, cloud, and mobile did to laggard companies, writes Hackett, no one wants to be the sucker left behind. There isnt a sector of the economy today, after all, where customers arent demanding faster transactions and lower costs.

Given the promise of this tech in so many industries today, its no surprise that its a magnet for brilliant young innovators. Youll find three on our 2017 40 Under 40 list, which highlights the most influential global leaders under that witching age. This years roster includes everyone from statesmen to stand-ups to startup idols.

Its a generation filled with revolutionariessome of them, even the technological kind.

A version of this article appears in the Sept. 1, 2017 issue of Fortune with the headline "New Kids on the Blockchain."

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Believe the Hype: Here's the Actual Next Big Thing in Tech - Fortune

One benefit of using bitcoin is the digital currency can be anonymousits owners can move money around the world without revealing who they are. Well, in theory at least. In reality, bitcoin is less secret than people think.

The latest reminder of this comes via a report that the Internal Revenue Service is using software to unmask bitcoin users who have failed to report profits. According to a contract unearthed by the Daily Beast , the IRS is paying a company called Chainalysis to help identify the owners of digital "wallets" that users employ to store their bitcoins.

In a letter to the IRS, the co-founder of Chainalysis says the company has information on 25 percent of all bitcoin addresses and that it deploys millions of tags to help track and identify transactions. Here is a screenshot of a paragraph from the letter:

The decision by the IRS to license the software of Chainalysis, which is based in Switzerland with an office in New York, appears to be part of the agency's larger campaign to target digital currency users who have failed to pay tax.

As Fortune reported earlier this year, the IRS claims only 802 people declared a capital gain or loss related to bitcoin in 2015. This is significant since the price of bitcoin soared from around $13 to over $1100 between 2013 and 2015, and hundreds of thousands (like millions) of Americans bought and sold digital currency during this timein other words, there are many people who face bitcoin-related tax trouble, and the IRS is tracking some of them down.

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There are indications, though, the IRS is focusing only on the bigger fish. For instance, in the agency's ongoing legal battle with the popular digital currency exchange, Coinbase, the IRS recently agreed to limit its request for customer records only to accounts with transactions over $20,000 .

Nonetheless, the IRS's use of the Chainalysis software is likely to make some bitcoin owners uneasy. Meanwhile, on bitcoin forums , some users have expressed resentment against exchanges like Coinbase, Kraken, and Mt. Gox for allegedly storing wallets in such a way that analytic companies like Chainalysis or BitSeer can identify individual users.

The forum chatter also shows some bitcoin users are thinking of switching to other digital currencies like Monero that are harder to trace.

Finally, the existence of tools like Chainalysis doesn't mean bitcoin users can't be anonymous. Those who wish to keep their identity concealed can do so by maintaining their own wallet and avoiding exchanges that collect customer information.

This is part of Fortunes new initiative, The Ledger , a trusted news source at the intersection of tech and finance.

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The IRS Has Special Software to Find Bitcoin Tax Cheats - Fortune

Mark Cuban, who owns Dallas Mavericks basketball team, speaks at the 2017 South By Southwest (SXSW) Interactive Festival in Austin, Texas, U.S., on Sunday, March 12, 2017. The billionaire recently said he is not ruling out a challenge against President Trump in 2020.Bloomberg Bloomberg via Getty Images

Billionaire investor and Bitcoin doubter Mark Cuban is coming around on cryptocurrency .

Despite saying Bitcoin was a bubble in early June, Cuban has backed venture capital firm 1confirmation, according to Bloomberg . The firm not only has plans to invest some $20 million in companies developing blockchain technologies , but it also wants to invest in early stage companies before they head into an initial coin offering (ICO)a fundraising effort in which the offering company issues tokens rather than ownership stakes.

Founded by Runa Capital principal Nick Tomaino, 1confirmation hopes an early stage investment in a promising albeit unproven company could lead to a discounted token price once young company holds an ICO, according to Bloomberg.

1confirmation also hinted that it hopes to add value to the companies it invests in to bump up its ICO pricing.

It's not the first time Cuban has gotten involved in an ICO. Cuban also plans on participating in a fundraising round of sports-betting blockchain platform Unikrn , meaning his latest investment could result in him indirectly owning more than one kind of cryptocurrency.

Read: 5 Ways Businesses Are Already Using Blockchains

ICOs have caught fire recently , at least among investors like Cuban. One major selling point is that while traditional methods of investing in a young company usually means holding onto the stake for a long period of time, tokens are far more liquid. If an investor wants out of a company, they can usually trade the company's coins for Bitcoin of Ether, which can in turn be traded for fiat currency, according to the Harvard Business Review .

Meanwhile, cryptocurrencies have surged in recent months , with Wall Street consistently raising Bitcoin's value higher and higher.

This is part of Fortunes new initiative, The Ledger , a trusted news source at the intersection of tech and finance.

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Mark Cuban Backs Cryptocurrency Fund After Saying Bitcoin Is a Bubble - Fortune

Even the skeptics cant avoid weighing in onbitcoin.

It seems like everyone is coming up with a price forecast these days, with some of the biggest banks including Goldman Sachs Group Inc. jumping into the action, while speculators to long-time investors are also making their bets.

The consensus is that the biggest cryptocurrency will face some resistance around $4,500 to $4,800 and correct, to then continue rallying. How high? Pantera Capital Managements Paul Veradittakit, Tom Lee at Fundstrat Global Advisors and John Spallanzani at GFI Group Inc. see it going to $6,000 by year-end, while Ronnie Moas at Standpoint Research says it will keep rising to $7,500 in 2018.

Bitcoin has been on a tear this year, more than tripling in value as it crossed the $4,000 mark and touched a record $4,477 last week. Its since retreated about 7 percent from the high as investors took profit and assessed whether the rally had gone too far. Growing adoption and institutional investor interest, agreement on a mechanism to speed up transactions and regulatory steps that will help the asset broaden its reach are some of the reasons that explain the gains.

Were in a very healthy position right now, saidVeradittakit, vice president of Pantera Capital, which has invested in bitcoin since 2014. Theres a lot of interest from traders and mainstream finance on the rise of all these new crytpo currencies, but when they first get exposure into the space, theyll go into bitcoin. It has the most liquidity and biggest brand name.

Veradittakit said bitcoin will hover around current levels and rally further once the underlying technology is upgraded in November, when the block size in the bitcoin blockchain is set to double to two megabytes, increasing transaction speed. Hes also encouraged by reports from the local exchanges Pantera invests in that cross-border transactions are increasing.

Read more about the bitcoin development dispute

But the road ahead might get rocky. Goldman Sachs technical analyst Sheba Jafari wrote in a note to clients Aug. 13 that bitcoin coulderase around 40 percent of its value after reaching $4,827. On a separate note, Goldman Sachs analysts said the space is getting big enough at over $100 billion in market capitalization that it warrants watching.

Spallanzani, chief macro strategist at GFI Group, also predicts a sizeable fall to as low as $3,000 unless it manages to break the $4,500 level it tested last week. But then it should rebound and climb to as high as $10,000 in 2018, he said.

It will have to retrace a bit more before we have enough power to break through, Spallanzani said. He recommends buying bitcoin when its above $3,800 and selling when its below that level.

Not everyone is so bullish. Roy Sebag, who said he first invested in bitcoin in 2011, said he sold most of his 17,000 bitcoin between May and June because he believes the long-term value will be zero.

Its completely devolved from the original promise, said Sebag, founder and chief executive officer of Goldmoney Inc., which oversees about $2 billion of assets. Bitcoin and cryptocurrencies in general are exhibiting a mania, fueled by speculative fervor.

Amid the frenzy, some analysts have steered clear of making price predictions, while still dipping their toes in bitcoin waters.

Read more on how to get exposure to bitcoin without owning it

Tom Price, a Morgan Stanley equity strategist, said bitcoin compares to gold in that both offer similar benefits as a store of value, such as being fungible, durable, portable, divisible and scarce. Still, a lot of time and trust-building will be needed before it becomes clear whether bitcoin will also undermine demand for the metal, he said.

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Cryptocurrencies including bitcoin are still very volatile and thus not particularly safe, but that could change as their value rises and liquidity increases, wroteBank of America Merrill Lynch strategists Martin Mauro, Cheryl Rowan and Matthew Trapp earlier this month. They score well when it comes to diversification, as their correlation to equities, bonds, commodities, currencies or selected measures of risk is near zero, the strategists said.

More longer term, bitcoin will climb to$25,000 by 2022, Fundstrats Lee said, as recent regulatory approval for options trading and settlement implies a significant rise in institutional holdings of bitcoin, while he estimates user accounts are likely to rise 50 percent and usage per account to climb 30 percent.

Moas of Standpoint Research said in an Aug. 14 report that bitcoin could rise to $50,000 by 2027 as he expects cryptocurrency users will grow to as high as 100 million users from 10 million today in the next couple of years.

It looks to me as though we are at the same point in the adoption curve as we were in 1995 with the Internet, Moas wrote. Cryptocurrency is becoming more widely accepted by the day.

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Bitcoin Analysts Compete for the Highest Price Forecast - Bloomberg - Bloomberg