Sats Back: How the Ebates of Bitcoin Plans to Convert Holders to Spenders

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“The merchants don’t want the banks either — that’s the alignment no one talks about. Look at what Kroger did. They pulled out of Visa. The retailers are on the good side.”

Alex Adelman, co-founder and CEO of Lolli, should know. After graduating from the University of North Carolina at Chapel Hill in 2011, the entrepreneur started Cosmic, an e-commerce gateway “with the idea to democratize commerce, allowing anyone to buy anything anywhere,” he told Bitcoin Magazine. The company, after an initial acquisition by PopSugar Inc., would end up in the hands of e-commerce cashback giant Ebates, and Adelman and his CTO, Matt Senter, would stay on staff after the buyout.

Now, the duo are taking their experience working at Ebates and their original dream to “democratize commerce” to a new network of technology and clientele: Bitcoin.

From Cash Back to Sats Back

While working at Ebates, Adelman told us that he learned “why people buy, how people use cashback programs,” — the hows and whys that would eventually lay the foundation for building Lolli’s bitcoin-back platform.

From craft beer memberships to VPNs to clothing, you can shop for just about anything on Lolli, though Adelman says travel is the most popular category (this is perhaps due to the fact that most airline booking sites, like CheapOAir, which accepts crypto as payment, give a flat rate in bitcoin back rather than a percentage).

Like Ebates’ own model, Lolli’s is simple and enticing: Shop online with Lolli’s participating retailers and earn a variable amount of bitcoin back as a reward. Launched just six months ago, the platform already has 10,000 active users, Adelman told Bitcoin Magazine, and it’s struck up partnerships with retail and online service leaders like Walmart, Overstock and Bookings.com. These are just a few names out of the 500 partners Lolli has brought to the platform as it continues to sprout and grow.

The seeds for the company were sown over five years ago when Adelman was on a trip to New York while he was still building Cosmic. He was couch surfing at the time while navigating the choppy waters of New York’s sea of industry, attempting to form partnerships and secure capital for his first startup.

Adelman said he doesn’t like the “Hollywood-ization” of those moments when the entrepreneurial light bulb clicks on and a business idea shines forth. But he also said that, if he could pick a moment when the initial spark for Lolli’s conceptualization was kindled, it was one fateful night at a New York bar when he met the soon-to-be co-founder of Blockstack, Ryan Shea.

“A couple of years into [Cosmic], we learned about bitcoin. On a trip to New York, I bumped into Ryan Shea randomly through a friend of a friend at a bar, and he had just learned about bitcoin and he talked my ear off for like three hours. And everything he said resonated with me,” Adelman said.

“Everyone has that friend or that moment. I was obsessed. Everything we were building was on top of fiat rails and all breakages we were seeing were with payments. We were getting taxed by every single one of these layers that has no real purpose or reason.”

Still, it would take years of careful deliberation and focus before Adelman and Senter would go full bitcoin with Lolli. Adelman’s glad they waited, telling Bitcoin Magazine that he doesn’t think they “would have had the same success if we tried to implement it five years ago.”

Originally, though, the team wasn’t going to build it for Bitcoin. After leaving Ebates, Adelman said that he and Matt toyed with Solidity to see if they could build a DApp for this use case. He was on a bit of an altcoin kick, he admits, and thought that Ethereum might be a good fit for the platform. That was until he took a walk in Washington Square Park with friend and [ ]Arjem Balaji.

“I was talking about some of the stuff we were building in Solidity and he asked pretty bluntly, ‘When’s the last time you read the Satoshi Whitepaper?’ And truthfully, I hadn’t read it in a couple years. It’s so basic, so I felt like I knew it,” he said.

“I read it again, and it hit me like this source of truth. And speaking candidly, I said, ‘What am I doing? Everything’s in Bitcoin. That’s where it starts.’”

“So I started the concept for this idea that was so simple: Ebates but for bitcoin. Giving people cash back in the form of bitcoin as a way to distribute bitcoin to more people.”

Between Adelman’s background of shopping Cosmic to retailers over the last seven years and Senter’s developing skills, “all these things beautifully came together, and Matt and I just started building.”

Matt hammered out a prototype in “about two weeks,” and Adelman began shopping around this beta to some retailers.

Turning Holders into Spenders

Today, Lolli continues to grow and, as it grows, Adelman believes that not only will it bring more people into the bitcoin ecosystem to passively earn the cryptocurrency, but it will eventually convert holders into users. Then, the companies that participate in the sats-back program will be incentivized to accept bitcoin as more users leverage the program and show interest in spending their bitcoin on actual services.

“The next stage — these earners are going to become spenders. Once they hold bitcoin, they’re going to want to spend it.”

For now, though, he says that the retailers are just happy to have the additional coverage. It wasn’t hard to convince them to play ball, he told us, because much like with Ebates, the cost is negligible and can be seen as a marketing expense. Lolli drives users to their sites because, like with Ebates, “people are loyal to [the service], not the particular brands.”

After these users purchase goods on these sites, Lolli receives a commission from that purchase and they credit the user’s account with bitcoin that the company buys from “top OTCs,” Adelman said. He emphasized that all user information is anonymized (the retailers don’t see names, only user IDs when someone shops using the service) and that the company does not make money by selling data, a misconception that the company has been crusading against online.

When asked whether or not the platform would expand to other cryptos, Adelman said he’s a big believer in free markets, and that people can spend their bitcoin or trade it for other cryptos if they wish. So, for now, he’s loyal to bitcoin, and he would rather focus on enriching the platform’s functionality before adding support for other coins.

In the works, for instance, is a category search function that will allow users to type in the item or services they’re searching for on the site to streamline their search. Until that feature is ready, customers can reach out to Lolli customer support to request an item and they will search for participating retailers to find the best deal for you. Adelman believes that this human factor and customer service will ultimately allow his new company to outcompete the legacy cashback company he came from.

“It’s all about good branding. We want people to associate good customer service with bitcoin. And if we can do that, it’ll mean more people defaulting to Lolli for bitcoin over Ebates in the long run.”

This article originally appeared on Bitcoin Magazine.

Tether Updates Website, Says USDT Backed by “Reserves,” Not Just Cash

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Tether just updated its website to clarify that each of its USDT tokens, which it used to claim were “always backed 1-to-1 with traditional currency,” are backed by assets other than fiat currency.

Now, the website instead reassures its patrons that it’s always “100% backed by [its] reserves.” It clarifies this vague language, even legalistic language, by saying these reserves “include traditional currency and cash equivalents and, from time to time, may include other assets and receivables from loans made by Tether to third parties, which may include affiliated entities.”

Despite the fact that some of Tether’s collateral might not actually be in fiat, the revised notice concludes by saying, “Every Tether is also 1-to-1 pegged to the USD, so 1 USD₮ is always valued by Tether at 1 USD.” The older version read, “1 USD₮ is always equivalent to 1 USD.”

Tether’s statement that it values each of its tokens at $1 is not the same as saying that each token is backed by $1; rather, each token’s dollar value is instead derived from Tether’s valuation of its assets. This clarification will likely embolden Tether’s more staunch opponents, who have argued that Tether is insolvent. While there’s never been any evidence to suggest that Tether does not have the reserves to back the coins in circulation, the company has routinely refused to submit to a formal audit, opting instead for attestations from a law firm in the past.

This update seems to at least lend credence to these insolvency concerns, which have been most thoroughly vetted by researchers at the University of Texas at Austin who released a report with a thesis that hinges on the belief that Tether’s issuance inflated the market during the 2017 bull run. It should be noted that this report has been refuted by other academics who took issue with the professors’ methodology.

Still, Tether claims that there are more than enough assets in its coffers to cover circulating supply. On its transparency page, the company records that it has $23 million more assets under its name than liabilities.

“From time to time, Tether reviews its Terms of Service and Risk Disclosures to ensure that they remain appropriate and up to date. Our most recent revisions were intended to update our disclosures to reflect Tether’s growth and operations and to be consistent with the types of disclosures used by other institutions,” a Bitfinex team member told Bitcoin Magazine, responding on behalf of Tether.

“The only change is that the composition of the assets that provide that backing includes a combination of cash, cash equivalents, and may also include other assets or receivables from loans issued by Tether,” they concluded.

With the language presented on the website and by this representative, Tether’s assertion that its backing may include “cash equivalents” and “other assets and receivables from loans made by Tether to third parties” reads like fractional reserve banking practices. This modern banking practice, which some believe helped to precipitate the 2008 financial crisis, allows banks to hold only a portion of its customer deposits on site, opting instead to loan the overwhelming majority of these funds to institutions and generate debt in place of physical assets.

“Fractional reserve banking is a banking system in which only a fraction of bank deposits are backed by actual cash on hand and are available for withdrawal. This is done to expand the economy by freeing up capital that can be loaned out to other parties,” Investopedia explains.

The fear of many Tether detractors is that the company is running a fractional reserve, a concern that was aggravated by the apparent inability to redeem USDT for cash through Tether’s website or Bitfinex, an exchange run by the same management as Tether. Tether’s cash portal, however, has reportedly been up-and-running since late 2018.

Given that the market’s largest stablecoin has been so opaque in its operations, the controversy surrounding Tether has provided fertile ground for competition. Through 2017–2018, there was a proliferation of fiat-backed stablecoins like TrueUSD, Gemini USD, USD Coin and the Paxos Standard, all of which are attempting to be an institutional and regulation grade alternative to the market’s first fiat stablecoin.

To bolster their credibility, the companies behind these coins have employed some of the U.S.’s top accounting firms to run an audit of their business and finances, something that Tether’s own executives have called impossible in the past, given the stigmatized nature of cryptocurrency companies.

This article originally appeared on Bitcoin Magazine.

Reacting to Public Ire, Coinbase Drops Neutrino Execs With Hacking Team Ties

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After a week of community discontent, cryptocurrency exchange Coinbase has decided to sever its business relationship with Neutrino employees who previously worked at the notorious Italian malware/software provider Hacking Team.

Blaming “a gap in [Coinbase’s] diligence process,” CEO Brian Armstrong writes in a Medium post that Coinbase “did not properly evaluate everything from the perspective of our mission and values as a crypto company.”

“We took some time to dig further into this over the past week, and together with the Neutrino team have come to an agreement: those who previously worked at Hacking Team (despite the fact that they have no current affiliation with Hacking Team), will transition out of Coinbase. This was not an easy decision, but their prior work does present a conflict with our mission. We are thankful to the Neutrino team for engaging with us on this outcome.”

Last week, Neutrino’s link to Hacking Team came to light thanks to Twitter commentators like Block Digest’s “Janine.” At least three individuals in Neutrino’s core team (CEO Giancarlo Russo, CRO Marco Valleri and CTO Alberto Ornaghi) had been principal employees of Hacking Team, as well as Luca Guerre, an intern-turned-software-engineer at the company.

Coinbase did not disclose which team members would be let go, so there’s no information to indicate how many other Neutrino employees might be affected by the severance. Armstrong also offered no timeline in his post for when these departures would take place.

Disbanded in 2016, Hacking Team made headlines during its business’ zenith for selling surveillance malware to authoritarian governments. Their software’s use has been implicated in inumerable privacy and human rights abuses, including the death and imprisonment of journalists and civil rights activists.

News of Hacking Team’s abuses spread like wildfire through the community, in part stoked by tenacious media coverage and social media backlash, culminating in a #DeleteCoinbase campaign.

And apparently, this heat was enough for Coinbase to decide to dissolve its connections with the people previously associated with Hacking Team.

Previously, the exchange had defended its acquisition in a blanket statement sent to the press. Coinbase stated that it “does not condone nor will it defend the actions of Hacking Team,” but that it wasimportant for [it] to bring [blockchain analysis services] in-house to fully control and protect our customers’ data, and Neutrino’s technology was the best we encountered in the space to achieve this goal.”

A few days after this response to the situation, Coinbase’s Director of Institutional Sales, Christine Sandler, would tell Cheddar that the need to bring these services in-house to protect data was due to its former blockchain analysis providers monetizing user data, something that is against Coinbase’s privacy policy.

In his post, Armstrong mentions that Neutrino was also acquired because their old providers didn’t support all the assets [the exchange] wanted to have on [its] platform,” so it “examined the players, found that Neutrino had some of the best technology in this area, and decided to acquire them.”

This article originally appeared on Bitcoin Magazine.

Coinbase Bought Neutrino Because Its Old Analysis Providers Sold User Data

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Coinbase’s Director of Institutional Sales, Christine Sandler, said in an interview last week that, in part, the exchange acquired controversial software firm Neutrino because its prior blockchain analysis providers were selling customer data.

“The compelling reason for making the acquisition was that Neutrino had some industry leading, best in class technology. It was important for us to migrate away from our current providers. They were selling client data to outside sources and it was compelling for us to get control over that and have proprietary technology that we could leverage to keep the data safe and protect our clients,” Sandler said in an interview with Cheddar.

In its current privacy policy, Coinbase asserts that it only shares customer information with third parties for fraud prevention and legal compliance as well as for “bill collection, marketing, and other technology services.” The same active policy says that they will personally never sell client information, transaction or personal, and nor will these third parties.

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Sandler’s slip up tells another tale. If her statement is true, then Coinbase may have inadvertently violated its terms of use. Coinbase users believed that their data was only being shared for regulatory purpose, not being monetized, as Jill Carlson points out on Twitter:

“Selling data is very different from collecting it for regulatory purposes. I consented to Coinbase collecting my data for KYC/AML purposes. I did not knowingly consent to Coinbase collecting my data to sell to other parties.”

Seeing as their prior providers breached this trust, Coinbase’s acquisition of Neutrino makes sense; out with the old and in with the (hopefully more trustworthy) new. In one of its news blurbs, cryptocurrency media platform Messari indicates that the purchase was likely made to minimize counterpart risk by bringing analysis services in house. Most all other exchanges use the same providers, a source told Messari, so going with the new kid on the block was likely the only way Coinbase could make sure the provider would do as they’re told.

“A source with knowledge of the situation explained there wasn’t much of a choice for Coinbase, as almost all regulated crypto exchanges likely use one of several large blockchain analytics tools, including those from industry leaders Elliptic and Chainalysis. The source said that those firms had moved to a ‘give-get’ data model, where Coinbase would only have been permitted to use the service in return for providing its own data. Coinbase ‘brought that capability in house so they weren’t in a situation where using a 3rd party tool was making it better’ as a surveillance tech.”

Still, if Coinbase was looking for a team it could trust, Neutrino’s past is far from trustworthy. The company’s three executives used to run a business called Hacking Team, which sold surveillance malware to authoritarian regimes around the world which precipitated, among other human rights abuses, the monitoring, imprisonment and death of journalists and regime dissidents.

Neutrino’s past has it and Coinbase embroiled in intense community scrutiny, and the collective ire has manifested in a #DeleteCoinbase campaign on Twitter.

Coinbase claims that Neutrino offer best-in-class software, hence why they’re the best fit for AML/KYC compliance and other business-related transaction analysis. But even disregarding the questions of trust that Neutrino’s past may muster, the company’s pedigree might not even be all that up-to-snuff.

Jesse Powell, CEO of Kraken exchange, said that Neutrino was disqualified “due [to its] risks” in a compliance evaluation. Even without this risk, they came in last for actual product when compared to four other providers.

“I asked our Compliance team what they thought of Neutrino,” Powell tweeted. “Fortunately, they’d just completed an evaluation. Neutrino came in last place on product (out of the 5) but was disqualified anyway due to the risks. However, other factors are important in M&A: cost, culture fit.”

BHB Network head Giacomo Zucco told Bitcoin Magazine that his company gave a negative evaluation of Neutrino’s services for similar reasons that Kraken’s compliance review raised red flags. Zucco told Bitcoin Magazine that, when BHB Network evaluated a live demo of Neutrino’s blockchain analysis technology for a client in February 2017, the company refused to let BHB test the tech using their own addresses.

The demo was conducted using “pre-defined addresses,” he said, and the team argued that they couldn’t open source the software because the technology had its own “secret” source that they couldn’t give away.

“We didn’t actually get so far. After the demo, I had some doubts about the ‘secret source’ claims. Then we googled names and that was enough for me to tell my client to pass,” Zucco told Bitcoin Magazine.

At the time of publication, Coinbase had not returned Bitcoin Magazine’s request for comment.

This article originally appeared on Bitcoin Magazine.

This Crypto Art Auction Lets Venezuelans Dismantle Maduro Bolivar by Bolivar

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To donate to causes aiding those in Venezuela, please visit #AirdropVenezuela’s website or Bitcoin Venezuela’s website. To partake in cryptograffiti’s charity auction, please visit the donation page and tune in to the live stream here.

“Literally and figuratively, the Venezuelan people are bringing down Maduro.”

This is how cryptograffiti described his latest work, a charity piece that he will be auctioning off online through a live stream in Colombia. The mural, constructed entirely of 1,000 bolivars, is painted over with a portrait of Nicolas Maduro, the autocratic leader of Venezuela whose power has been constitutionally challenged by opposition leader Juan Guaido since January of this year. In the painting, Maduro’s mouth is censored with a blue bar bearing the hashtag #AirdropVenezuela, an ironic nod to the political and economic repressions the Venezuelan people have endured while also applauding their ability to persevere through this hardship.

As usual with the crypto artist’s symbolic and subversive work, the auction comes with a twist — a deconstructive one.

With each donation, a bolivar from the mural will be torn off by a Venezuelan citizen. Broadcasted from Cúcuta, Colombia, a city bordering Venezuela, the cross-border protest will allow the Venezuelans to vent political frustrations and simultaneously attract donations for aid.

“The piece-by-piece dismantling of the bolivars by those choosing to donate crypto is meant to represent a new beginning made possible by a new form of money not controlled by any one authority. There is also symbolism in how these donations have the ability to come from outside of a region known for heavily regulated currency controls,” cryptograffiti told Bitcoin Magazine.

The auction will also accompany a live art session where Venezuelan children will create pieces to be sold at a later date.

Since the death of Hugo Chavez in 2013, the policies of Venezuelan president Nicolas Maduro have thrown the country into economic and social turmoil. With an economy ravaged by hyperinflation, rampant poverty and crime have furnished a worsening humanitarian crisis. The crisis reached a bloody impasse on February 21, 2019, as Venezuelan forces opened fire on protesters at the Brazilian border after the government refused to accept humanitarian aid.

It’s proven difficult for aid to penetrate the country’s borders. But bitcoin and other cryptocurrencies have become a vestige of monetary hope for Venezuelan expats who want to send money back home, and cryptograffiti’s auction will leverage crypto’s borderless nature to buy aid from within the country.

In a partnership with AirTM as part of their #AirdropVenezuela campaign, cryptograffiti is directing all donations, which can come by way of cash deposits on AirTM, bitcoin and a host of altcoins, to the philanthropic campaign. As a wider effort, AirdropVenezuela’s goal is to send $1,000,000 worth of cryptocurrencies to 100,000 families in Venezuela. Even just $10 worth of cryptocurrencies “can help a family purchase food, medicine, and scarce imported goods. Access to digital money can help introduce Venezuelans to cryptocurrencies, online freelancer platforms, ecommerce, investments, donations and other income generating web-based opportunities,” the campaign states.

For the art auction in particular, the charity collective has set its fundraising goal at $10,000. Fifty percent of these funds will go to rebuilding the auction venue, the Fundación Renacer, a daycare that provides support for families affected by the financial crisis, while the remaining 50 percent will be distributed with the rest of the funds raised by AirdropVenezuela at the end of April.

I’m in Cúcuta where Venezuelan refugees are arriving by the thousands for food, medical aid & to live free from oppressive rule. @theAirtm & I have teamed up as part of their #AirdropVenezuela campaign to raise funds for those in need via an interactive mural live-streaming now pic.twitter.com/NDVlHCAgId

— cryptograffiti (@cryptograffiti) February 26, 2019

Crypto education company Cripto Conserje will oversee the reconstruction of the daycare, and during the auction, it will host information sessions on how to access, use and store cryptocurrencies, including teaching attendees how to use coins distributed at the event to purchase food kits from one of the auction’s partners.

This education will hopefully unlock crypto’s potential for an economically disenfranchised population that needs it most. For Venezuelans, bitcoin and the like can provide a censorship-resistant method to store and transfer value, something AirTM’s services are trying to make more accessible for Latin American and, more urgently, Venezuelan citizens who lack access to robust banking and a sound currency. The application accommodates more than 200 deposit and withdrawal methods, including crypto, to convert currencies to USD in order to store value and protect it “from possible devaluations.”

When bitcoin is used in Venezuela, it is often as a go-between for a foreign currency and the bolivar or some other, stronger one like the dollar.

Eduardo Gomez, head of support at Purse.io, for example, told Bitcoin Magazine that when Venezuelan expats send money back home with bitcoin, they will typically sell it through LocalBitcoins to a Venezuelan trader, who will then deposit bolivars into the bank account of the expat’s relative. As the economic situation has only degraded further in 2018-2019, LocalBitcoins has seen rapidly increasing trading volumes in Venezuela.

Occasionally, your technically minded Venezuelans will sell the bitcoin themselves for USD (or another foreign currency) and deposit that money into a foreign bank account as savings. Either way, cryptocurrencies typically serve just as an intermediary for value transfer, one that circumvents the tight remittance controls and fee gouging that the Venezuelan government effects with its monopoly over currency conversion and international money transfers.

The AirdropVenezuela campaign wants to take the extra step in getting beneficiaries to use crypto instead of relying on Venezuela’s failing fiat currency. The campaign will donate and educate these citizens on crypto’s significance in their situation, as well as alerting them to online economies that may allow them to receive crypto as payment, such as freelancing.

This is how Gomez, who has been living on bitcoin since 2012, is pulling his family out of poverty. He began receiving bitcoin for freelance translation work online, and after leaving Venezuela, he trades bitcoin for bolivars on LocalBitcoins to send his family funds.

Cryptograffiti hopes his latest work will expose a grim situation which has continued to experience much deserved attention under the international spotlight as of late. But as much as it exposes the severity of the situation, he hopes that the part-performance art, part-visual art will reveal (and convince people of) the solution to these economic woes.

“After reciting the tired ‘maybe it doesn’t apply as directly to you, but Bitcoin is important in authoritarian regimes’ line one too many times, I wanted to do something to contribute to Venezuela and experience the situation first-hand,” he said.

“I’ve been thinking a lot about collaborative art as of late and how it helps spread the message and engage viewers. This led me down the path of a mural that was made up of many different parts that would be interactive in some fashion.”

After the auction is over, two pieces — Maduro’s left and right eyes — will be signed by cryptograffiti and one will be sent to the highest bidder based on his or her preference. The other will go to another donor chosen at random.

Cryptograffiti’s auction is the latest in artist-led philanthropy efforts. Billionaire business mogul Richard Branson hosted a charity concert in Cúcuta last Friday. Branson hoped the concert would raise awareness and some £100 million for the people of Venezuela, and it attracted an appearance by opposition leader Guaido.

In the realm of crypto philanthropy, Bitcoin Venezuela, a charity organization founded by Randy Brito, also exports bitcoin funding for aid inside the country. Subsisting on donations in the ballpark of $100, the organization sends funds into the country to workers on the ground who provide food, clothes, medical supplies and other provisions to struggling Venezuelans. Once the Lightning Torch, a Lightning network payment experiment that has been making global rounds, reaches the network’s channel limit, its creator, hodolnaut, intends to have the final sum donated to the charity.

Image courtesy of cryptografitti.

This article originally appeared on Bitcoin Magazine.