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Quick Take

• Disclaimer: The Block Research team has, is, and will be experimenting with the various protocols, projects, and applications mentioned in this series. The projects mentioned in our reports are not recommendations from our team and should not be misconstrued as investment advice. Many projects that appear in this series are highly experimental and, as such, will come with risks. Readers should evaluate their own risk tolerance before experimenting with these projects.
• DeFi Digest is a bi-weekly look at newly launched DeFi projects
• This week’s digest looks at Alkimiya Protocol and Pawn.Fi

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Quick Take

• Fireblocks is a blockchain cyber-security services provider for moving, storing and issuing digital assets
• $133mm Series C at a $700mm valuation in May-21 led by Coatue, Ribbit and Stripes
• Recent $637bn in digital asset storage and transfers milestone, a +2,032% uptick in volume YoY
• Partnership with BNY Mellon in Feb-21 to grant institutional managers access to the digital asset space
• Nominated by Microsoft as a Cyber Security Trailblazer for Microsoft’s Security 20 / 20 Awards
• With the crypto custodial facing consolidation and regulatory hurdles, Fireblocks is well positioned for a market share grab as institutional asset management and market makers look for a reliable platform

This research piece is available to
members of The Block Genesis.
You can continue reading
this Genesis research on The Block.

Sichuan, a major Chinese bitcoin mining hub, due to its abundant hydroelectricity, is the latest province that has issued an order to shut down local bitcoin miners.

The Sichuan Energy Bureau and the Sichuan Development and Reformation Commission jointly issued a document on Friday to their subordinate state-owned power generators and distributors.

Based on the document that is circulating on WeChat, seen and verified by The Block, the government agencies have outlined two main measures in regards to closing down local bitcoin miners. This will have been triggered by the high-level comment on bitcoin mining brought up in the Chinese State Council’s meeting last month.

The measures will directly impact the 26 mining entities that had tried to work with the government, those that had set up in specific industrial zones and registered with the government. It will also seek to crack down on smaller mining operations that get their electricity privately from smaller power plants — under the radar of the State Grid — but this may be less effective.

The first measure

The first measure requires the subordinate state-owned power generators and distributors, such as the State Grid, to cut off their hydroelectricity supply to 26 entities that have so far been reported as bitcoin mining facilities, by June 20.

Earlier this month, the Sichuan Energy Bureau summoned a meeting with local state-owned power entities to understand how many mining facilities they have been supplying energy to and the impact on the local hydroelectricity economy if they are ordered to shut down. 

Based on the list of the 26 entities enclosed at the end of the document, most of them had, in fact, been granted to operate at the Hydroelectricity Consumption Industrial Demonstration Zones in Sichuan in what was previously believed to be a compliant method. 

As The Block reported last year, such industrial parks were set up by the Sichuan government in a bid to attract energy-intensive industries to help consume the excessive hydroelectricity in the region during the summer rainy season that would otherwise be wasted.

Since 2020, dozens of bitcoin mining facilities, including many of the entities on the government’s document list, had been approved to reside in these industrial parks to enjoy stable supply from state-owned power grid.

In return, they went through an application process to be registered with the government as well as pay a premium fee to the local government and the State Grid. But perhaps it’s because of this prior registration with the local government that they became the first victims of the crackdown.

The second measure

There is still a significant number of operating bitcoin mining facilities in Sichuan and Yunnan that receive privately supplied energy from smaller power plants, in a way that’s under the government’s or state-owned power grid’s radar. This so-called direct-supply model is a common and yet grey area practice since it bypasses the State Grid as a power distribution middleman.

It’s also part of the reason that the Sichuan government set up the hydroelectricity consumption park to battle against these private energy deals between smaller power plants and bitcoin mining sites.

Hence the second measure is that the two provincial government agencies are requiring state-owned power entities as well as municipal and county level governments to expand inspections on their network and immediately cut supply to additional mining facilities if found. They must also compile further progress updates by June 25.

It remains to be seen to what extent subordinate state-owned power plants will inspect bitcoin mining farms using privately generated hydroelectricity. In the meantime, Bitcoin’s hash rate has remained steady since Thursday.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Crypto asset manager Grayscale announced Thursday that it is exploring 13 more investment products, including ones tied to Solana (SOL) and Polygon (formerly Matic Network) (MATIC) tokens.

The other 11 products under consideration are tied to these tokens: 1inch (1INCH), Bancor (BNT), Curve (CRV), Internet Computer (ICP), Kava (KAVA), Kyber Network (KNC), Loopring (LRC), NEAR (NEAR), Ren (REN), Universal Market Access (UMA), and 0x (ZRX).

The new list comes a few months after Grayscale said in February that it was considering launching 23 new products, including those tied to Uniswap (UNI), Chainlink (LINK), and Polkadot (DOT) tokens. From those 23 products, Grayscale launched five, including one for LINK.

While Grayscale is now exploring a total of 31 new products, it does not mean it will launch all of those. The asset manager said the process of creating an investment product is complex and multifaceted.

“It requires significant review and consideration and is subject to substantial internal controls, sufficiently secure custody arrangements, and regulatory considerations,” said Grayscale.

Grayscale is the largest crypto asset manager in the world, managing more than $34 billion in client assets. Its bitcoin trust product (GBTC), however, boasts the lion’s share of the total assets at more than $25 billion.

For the past four months, GBTC has been trading at a discount, i.e. the market price of GBTC shares is less than its net asset value or NAV. The current GBTC discount is around -14%.

There are several factors behind the discount, as The Block reported recently. These include new competition and selling pressure from existing customers.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Tesseract, a Helsinki-based crypto lending business, has closed a $25 million Series A fundraise led by London’s Augmentum Fintech.

Venture capital firms BlackFin Capital Partners, Concentric, DN Capital, Jabre Capital Partners, LeadBlock Partners and Sapphire Ventures also participated in the round, alongside algorithmic trading firm Wintermute and Coinbase Ventures. Existing backer Icebreaker.vc also invested.

Tesseract did not disclose a valuation.

The lender, which is supervised by the Finnish Financial Supervisory Authority (FIN-FSA), is focused on lending out crypto deposits sourced from institutions to sophisticated investors in the crypto space.

Yichen Wu, CEO and co-founder of Tesseract, told The Block that the platform is “purely institutional on both sides,” which has helped it to keep a low profile. 

“There’s a lot of exchanges and folks out there that want to offer an interest account for their retail customers, but it’s not what they do – they’re not credit people,” said Wu. “Crypto credit as a space is extremely underdeveloped. What you see is a lot of folks take other people’s deposits and lend it out to hedge funds and folks on the other side and hoping for the best.”

Wu said Tesseract stands out in the market because it is fully digitized and connected to regulated custodians. He added that the platform is the only example of a “true prime lending product” in the crypto space, in that it can offer inter-exchange cross-margining for clients.

Tesseract said in a press release that it is already a profitable business and that the new funding was primarily a means of bringing in the expertise and professional networks of the company’s new investors.

“We bootstrapped ourselves and we are profitable. We didn’t need the money,” said Wu.  

Augmentum, which led the raise, is a fintech-focused venture capital firm that is listed on the London Stock Exchange. Its high profile bets include Monese, Tide and Onfido.

The investment firm launched a decentralized finance (DeFi) strategy in partnership with ParaFi Capital in January 2021.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

More than 3,000 automated teller machines (ATM) in Beijing have now been enabled with a feature that can convert China’s digital yuan, also known as the e-CNY, into cash, and vice versa. 

According to a Xinhua news agency report on Friday, the Beijing branch of the Industrial and Commercial Bank of China (ICBC) has now activated the feature across its 3,000 ATMs in the Chinese capital city. It’s yet another sign that China is widening its ongoing e-CNY tests towards a full roll-out.

The Agricultural Bank of China (ABC), also one of the big-four state-owned commercial banks with the ICBC, has activated 10 ATMs with the same feature in the Wangfujing district, a major business and shopping area in Beijing.

The ABC first started testing the feature in January in Shenzhen when the city was having its second round of the e-CNY lottery campaign.

The ICBC began testing the same feature on its 10 ATMs in February in Beijing. The Block previously reported a video clip that offered a first-hand look on how the feature worked.

The Chinese capital city has recently conducted its second e-CNY lottery giveaway campaign with 40 million digital yuan, worth around $6.3 million.

Overall, a total of six Chinese cities – Shenzhen, Suzhou, Beijing, Chengdu, Changsha and Shanghai – have conducted 11 rounds of e-CNY giveaway lotteries since October with the amounts totaling to over 250 million in digital yuan, worth about $40 million.

The most recent giveaway in Shanghai has notably expanded the reach by increasing the number of the e-CNY lottery winners to 350,000 local residents. In all of previous tests in other cities, the number of lottery winners each time was capped at 200,000 residents.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Last month, MicroStrategy CEO Michael Saylor teased that he had convened a meeting of North American bitcoin miners to promote renewable energy and transparency.

Now, the so-called “Bitcoin Mining Council” (BMC) has held its first meeting, open to the public through Twitter Spaces.  

Information about the council first came to light through Tesla CEO Elon Musk. Tesla suspended bitcoin payments for its products due to environmental concerns after enabling them just months prior. As many debated why the tech mogul would go all-in on bitcoin, enabling payments and adding the crypto to Tesla’s balance sheet without examining the energy expenditure narrative, Saylor formed the council and invited Musk to speak with industry players. 

But Musk was notably absent from the council’s conversation, and the only reference to him came in one audience member’s volatility concerns that “one person’s tweet, for example Elon Musk’s tweet can create volatility in something that’s supposed to be so widespread.”

The BMC has dispelled any relationship with Musk on its website by explaining that “the extent of his involvement was joining an educational call with a  group of North American companies to discuss Bitcoin mining.”

The group took a more informational angle rather than positioning itself as a self-regulatory organization that could possibly assuage regulatory concerns. As the BMC says on its website: “The BMC is not designed to have ‘teeth’ or tell anyone what to do.”

In fact, much of the conversation centered on “getting ahead of the media,” as Saylor put it. Over the 90-minute meeting, members of the group presented their takes on topics like flare mining, the hash rate drop in China and the failed attempt to impose a mining moratorium in New York.

The mission, should members choose to accept it

As put by Jamie Leverton, CEO of member organization Hut 8 Mining, the council’s mission is:

Every facet of participation will be voluntary. Members are invited to be as transparent or opaque as they wish, without any imposed standards — including disclosures.  It also won’t create mandatory regulatory or compliance standards for its members, nor will it create any barrier to entry. 

“It’s definitely not our agenda to provide any governance or any requirements or any rules because it’s not a governance council,” said Saylor.

This approach seems to be a way for participants to openly share what they feel is a fuller picture of the state of mining — a picture they feel mainstream media has failed to capture. Those participants include founding members MicroStrategy, Riot, Galaxy Digital, Marathon Digital, Hut 8, Hive, Core Scientific, Blockcap and Argo. 

Amanda Fabiano, head of mining at Galaxy Digital, said it means miners and public companies engaging with mining can “get ahead of some of these bad narratives we see in mainstream media.”

As Saylor positioned it, those in the council support the Bitcoin network as it is. Though they as individuals might advocate for renewable energy use and seek to correct what they feel are bad or skewed narratives related to energy consumption, they’re not bound by any governance model to commit to initiatives that would bow to regulatory regimes, like the censorship of transactions or mandated energy initiatives.

What will bind them together, according to Saylor, is joint advocacy for the network.

“We’re not here to fix Bitcoin,” said Saylor. “So I think you could just assume that we buy into the entire ethos as hardcore as anybody and we’re going to do everything we possibly can to defend the values of Bitcoin. We’re here to defend Bitcoin from people that misunderstand it, that would cause politicians to move against Bitcoin or cause negative media narratives that would undermine the spread of Bitcoin to the world.” 

It’s early days for the council. The group is currently focused on signing up members and figuring out what to do as a group, so it has no budget thus far and no plans to spend any money. The idea over time, though, is to create a model of the Bitcoin mining network to show others the energy usage and mix of resources.

Saylor said the council would hope to publish any findings if it goes down that road so that others can make forecasts for the network. Still, this would be voluntary for any members, meaning the model the council eventually comes up with may not be the full picture.

The public problem

Caitlin Long, CEO of digital asset bank Avanti, pressed Saylor and his council members on the involvement of public firms. With no mandated disclosures or other checks to keep larger firms from drowning out smaller miners, and public firms remaining beholden to the whims of board members, Long wondered whether public company involvement in mining was “good for Bitcoin.”

Though there is no formal commitment to avoid creating a block that could alter the network, Saylor said that idea hasn’t entered any conversation. 

Pointing to his experience as a CEO at a publicly-traded company, Saylor said the pressures from board members or activists are less of a concern. The broader fear is that the so-called media narrative surrounding mining will influence political developments, which would create real barriers to entry in particular jurisdictions.

The greatest threats are external, he said, and for that reason, it pays to unite with larger entities. The network needs corporations, institutions and exchanges to defend it along with mining pools and more decentralized entities, according to Saylor. 

“You could be a maximalist and say ‘I’m against organization’ as a matter of philosophy, but if you get sued by a multibillionaire that wants to sue an individual Bitcoin developer and you get buried in $10 million in legal fees, you’ll be wishing that there was an organized legal defense fund for you…basically, we can’t expect to succeed if we’re disorganized.”

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

The growth of the Bitcoin Lightning network — which promises to help Bitcoin become a more efficient payment network — has picked up the pace this year. It’s also getting easier to use.

On June 14, the amount of bitcoin in the Lightning network broke 1,500 bitcoin, worth more than $60 million. And there are now more than 12,000 active nodes across the network, all connected by 50,300 channels. 

To get a sense of how it works, imagine there are 12,000 pins on a board, connected by 50,300 intertwining and overlapping wires. And all these wires are sending information to each other, enabling the flow of money between the pins. 

But despite this growth, many people interested in trying out the Lightning network don’t know where to start.

If you are interested in dipping your toes into the Lightning network, below is a rough roadmap for how to set up your own node using just a Raspberry Pi — and how to spend money using Lightning once you are up and running.

Setting up a Bitcoin Lightning node

In order to access the Bitcoin network and set up a Lightning channel in a truly decentralized and non-custodial way, you’re going to need to run your own node. No need to panic! It’s actually pretty simple. 

If you’re running a node on a computer, you can just download Bitcoin Core for Windows, Mac or Linux. But if you want a separate bit of kit to run it on — something you can leave running all day and that won’t use up a ton of space on your computer — then you can use a Raspberry Pi. 

Running a node on a Raspberry Pi is the same as running one on a larger computer. The only difference is that you need specific software to account for the differences in hardware. You can either program this yourself or use one of the pi-focused bitcoin node software clients that offer their own implementations of Bitcoin Core. 

Some Raspberry Pi nodes, like myNode and RaspiBlitz offer a wide range of features and customization options. Umbrel, on the other hand, provides a limited, controlled environment that is much easier for a novice user to set up. That’s why for this guide we have chosen to set up an Umbrel node.

According to the Umbrel website, to fire up your node you will first need around $240 worth of parts: a Raspberry pi 4, a 1 terabyte solid-state drive (SSD), an SSD enclosure, a 16 gigabyte or larger microSD, an ethernet cable and a power source. 

The Raspberry pi when pieced together. Source: The Block.

Once you piece together all the parts, connect the Raspberry Pi to the SSD and your internet router and connect the power, you are ready to download the software.

First, you’ll have to download Balena Etcher — an open-source program for adding data to SD cards — and plug the micro SD card into your laptop. Then you’ll need to download the Umbrel software from its website. Follow the instructions on the Etcher app to flash the Umbrel software onto the SD card. Once that’s done, you can transfer the SD card into the Raspberry Pi.

When the Umbrel device loads up, you can connect to it from your computer by typing in Umbrel.local into your URL bar in your internet browser. (If it doesn’t come up you might need to find your node’s IP address using Angry IP Scanner.) 

A step-by-step guide will take you through the process of setting up a Bitcoin wallet. Make sure to write down and save your seed phrase in a safe place (those words enable you to access your funds). Once that’s done, it’s all set up and you should see the Umbrel dashboard.

Now you actually have to download the blockchain. The Bitcoin blockchain takes a few days to download. You can watch its progress on the dashboard. Note that the percentage downloaded will increase more quickly at first, but slow down as blocks become slower to process. That’s because over the years they have become fuller with more transactions, and your node will have to check the validity of each transaction. 

Once the blockchain data is on board, you’ll want to transfer a small amount of bitcoin to the wallet on your node. Since it’s connected to the Internet, it is a hot wallet — so is slightly more risky. (You can also connect your node to a hardware wallet if you happen to have one). But this will enable you to spend bitcoin from your node at home, with your phone. 

Opening a Lightning channel

At this point, your node will already be connected to the Lighting network, since Umbrel sets one up in the background. But in order to start sending money over it, you need to open a channel. 

This involves making a specific kind of bitcoin transaction that effectively tells the network that you’re opening a channel with another person on the network.

To open a channel you want to click the Lightning tab and select “open channel.” (You can also download one of the Lightning apps in the in-built app store on your node and use that instead.) 

A visualization of the Lightning network. Source: Lightning Network Explorer.

Now you need to find a Lightning address of a node to connect to. You can find these on Lightning explorer 1ML, like Wallet of Satoshi’s address. Then you want to set the amount of bitcoin you want to put into your channel and roughly how much you’re willing to pay.

Once you’ve set up a channel, you are connected to the network through that channel. That means you can send satoshis to anyone else on the network, as long as there is a suitable path from your node to their node. 

After about 30 minutes, your channel will be open and you can start sending satoshis to anyone over the Lightning network from your node.

Connecting your phone to your Lightning node

This is the pretty cool bit, because it means you can spend your bitcoin from your node, no matter where you are in the world. In short, you can connect to your node through the Tor network, which obfuscates web traffic, and it lets you control your node — and therefore your channels and payments — from your phone.

In this guide, I’m going to use Zap but Umbrel also has an app for Blue Wallet, which offers the same functionality (only for some reason it wouldn’t work for me). Zap is a Bitcoin Lightning wallet — that lets you connect to your own node. It was created by Jack Mallers, who also built Lightning-based payments app Strike. 

Once you’ve downloaded Zap, you can go to the “Connect Wallet” tab on the Umbrel dashboard. Then select Zap for whatever mobile phone platform you use. For Android, it tells you that you need to download Orbot on your phone, which lets Zap connect through a VPN.

This page will also show a QR code. All you need to do is scan that QR code from inside the Zap app and it will connect your node. Once it’s connected, it will show the balance on your node.

Spending bitcoin over Lightning

Now you’ve set up a Bitcoin Lightning node and connected it to your phone, you can spend bitcoin over the Lightning network anywhere. 

It’s pretty simple. When you want to pay someone an amount of satoshis, they need to generate a Lightning invoice on their phone or other device. If you scan the invoice with your phone using the Zap app, it will then show a confirmation message checking if you want to send those funds. 

Once you choose to do so, it will transfer your satoshis over Lightning. Typically the payment will be confirmed within a few seconds and fees are usually just a couple of satoshis, which are each worth $0.00035.

What it looks like to send a Lightning payment. Source: The Block/Zap.

The Lightning network is good for small payments in general (it’s still a fairly experimental network and liquidity is still growing on it) but it also lets you do tiny payments, or micropayments. 

For example, once I set this up — and tweeted about it asking to test it out — I then sent a single satoshi to a software developer in Lisbon, Portugal, who volunteered to help. Because the payment was so miniscule, it was actually smaller than the fees I paid (about $0.0007) to send it. (Each lightning node sets its own fees for routing payments, so transaction fees depend on the route the payment takes.)

You wouldn’t normally send such a small amount. The important thing here is that such tiny payments can be made at all. Micropayments have long been a technical challenge, both in and out of the cryptocurrency world. 

It also puts the $60 million on the Lightning network into perspective. On the main network, where transactions are often massive, this may not seem like much. But on Lightning, where most of the money is moving from node to node in tiny pieces, it stands for a lot more.

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

A new collaboration between peer-to-peer payments company Circle and offline maps application Maps.me will enable users to make instant international and in-app payments using Circle’s dollar-pegged stablecoin, USD Coin (USDC).

The Maps.me mobile app provides offline maps using OpenStreetMap data. The new partnership will allow users to make stablecoin payments to Maps.me partners in over 35 countries, using a linked credit or debit card. Users will also be able to buy and hold USDC and MAPS tokens in a Maps.me digital wallet.

“Stablecoins and DeFi are going mainstream and Circle is a natural partner for the Maps.me ecosystem in driving mass adoption,” Maps.me Co-founder Alex Grebnev said in a statement. “We know that Maps.me’s large and highly engaged user base is looking for instant, secure, and easy-to-access financial services that are relevant to their needs.”

According to the announcement, participants in the crypto program will also get access to more deals on Maps.me, like cashback on travel reservations and discounts on telecom plans. “This partnership with Circle accelerates our ability to deliver the benefits of DeFi and put people in charge of their financial lives, just like they are in charge of their travel,” Grebnev said.

Circle’s USDC is the second most popular stablecoin behind Tether’s USDT. Its market cap has grown by five times since the beginning of this year. Meanwhile, an increasing number of companies and exchanges are integrating support for stablecoins, and the total supply of stablecoins exceeded $100 billion late last month.

According to Circle, this year USDC has facilitated “billions of dollars in on-chain economic activity” and is “providing financial access for thousands of customers around the world.” The partnership with Maps.me is part of making the stablecoin into a “seamless payment tool around the globe,” reads the announcement.

“Our two companies share a commitment to transforming money into an internet experience that allows users to send, share, pay and invest as simply and freely as email, text messaging, or social media,” Circle co-founder and CEO Jeremy Allaire said in a statement. 

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.

Tom Mutton, the director of fintech at the Bank of England, spoke on the outlook for central bank digital currencies at FStech’s “Future of Fintech” conference on June 17. Specifically, Mutton addressed responses to the BoE’s discussion paper on CBDCs, as well as the outlook for the technology.

On one hand, Mutton maintained that any British CBDC would require a great deal more work before launch. On the other, he was more optimistic about CBDCs — as well as the potential role of blockchain in a digital pound — than prior public statements from the BoE had been.

“As a liability of the Bank of England, CBDC would be the safest type of money available,” said Mutton. He further subtly distinguished the envisioned CBDC from existing private stablecoins by comparing them with other forms of private money:

“The ability to convert, on demand, ‘private’ money – such as a bank deposit, into ‘public’ money, issued by the central bank, in the form of cash, is a foundation of that confidence. It also promotes the understanding that different types of money are uniform and makes them substitutable.”

Recent news has emphasized rising concerns over Bitcoin’s energy use, which has led to broader skepticism over blockchain technology. While Mutton was careful to say that the BoE had not confirmed that it would issue a CBDC, let alone specify the technology that would underpin it, he did enjoin listeners: “let’s not throw the blockchain baby out with the Bitcoin bathwater.”

Mutton’s speech highlighted responses to a discussion paper on CBDCs that the BoE had released last year. Of those responses, 39% came from technology and fintech firms, while only 5% came from financial institutions. Overall, Mutton said that responses were favorable to a cautious approach:

“Whatever a respondent’s position on whether or not a CBDC might be needed, there was near universal agreement that the pros and cons needed to be studied in depth, broad engagement was needed as the evidence was assembled, and open consultation essential before reaching any conclusions”

© 2021 The Block Crypto, Inc. All Rights Reserved. This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.