Microsoft Partners with Ethereum Company, Offers Cloud-Based Blockchain Application Development Platform to Its Clients

Bitcoin Magazine
Microsoft Partners with Ethereum Company, Offers Cloud-Based Blockchain Application Development Platform to Its Clients

Microsoft has partnered with Consensys, a blockchain startup focused on Ethereum technology, The Wall Street Journal reports. Through the partnership, customers of Azure, Microsoft’s cloud-based business service, will have access to tools that will allow them to experiment with and build cloud-based blockchain applications, from securities trading to cross-border payments to corporate accounting, and offer them to their own customers.

ConsenSys was founded in October 2014 by Joseph Lubin, who co-founded the Ethereum Foundation with Vitalik Buterin. Based in Brooklyn and staffed by 60 full-time developers and 30 consultants worldwide, the company formed ConsenSys Enterprise to develop large-scale blockchain solutions.

Azure clients will be able to rapidly prototype blockchain applications, from accounting to logistics to cross-border payments and settlement, and deploy their applications to the cloud. Firms that create products on Azure’s blockchain service can choose whether to release the product to the general public or control who has access to them.

ConsenSys is building and maintaining the service, and Microsoft is essentially providing the distribution platform, which in this case is Azure. ConsenSys isn’t getting any revenue under the partnership, but plans to offer consulting and other high-end services to Azure clients. The new cloud-based blockchain app development and deployment service, dubbed Ethereum Blockchain-as-a-Service (E BaaS), will be formally revealed at Ethereum’s Developer Conference, DEVCON, in London on November 10.

“Focusing on financial services, we saw a lot of potential for a framework and platform like Ethereum to go across the platform of financial institutions and modernize a lot of processes that were stuck in the past,” said Marley Gray, director of technology strategy and U.S. financial services at Microsoft, TechCrunch reports. “We thought that Ethereum was a really good platform for building distributed ledger applications.”

BlockApps’ Strato, a full-stack Ethereum technology solution, has been chosen as a technology platform for E BaaS. Strato permits building customized blockchain ledgers based on Turing-complete Ethereum standards, with built-in support for smart contracts. The company claims that, using Strato, developers can build blockchain applications faster and efficiently using Web tools they are already familiar with.

“Microsoft is excited to host BlockApps Strato on Azure Ethereum BaaS,” noted Gray in a press release jointly issued my Microsoft and BlockApps. “BlockApps Strato is a full-stack technology solution that allows users to build industry-specific Blockchain applications on top of customized private, consortium (semi-private), or public- permissioned Blockchain ledgers.”

There is “tremendous hunger” for blockchain tools among Microsoft’s customers, Gray told The Wall Street Journal, adding that the company was attracted to Ethereum by its flexibility.

“Microsoft is the perfect technology alliance to deploy our flagship product, BlockApps Strato,” noted Victor Wong, CEO of BlockApps. “Microsoft Azure is an extremely strong cloud and Microsoft expertise is unparalleled in the enterprise sector. We see this as a first step in educating enterprise level clientele about the power behind Ethereum blockchain technology.”

“This is a watershed moment towards mass-adoption,” Andrew Keys, director of enterprise business development and communications at ConsenSys, told New York Business Journal. “This makes development of blockchain apps exponentially easier.” Keys described Strato as a “blockchain-specific sandbox” where developers can refine their apps before deployment on the public-facing Ethereum blockchain.

The choice of Ethereum over Bitcoin is motivated by Ethereum’s Turing-completeness and flexibility. “Bitcoin offers one functionality which is the monetary functionality,” said Lubin to TechCrunch. “It’s difficult to build arbitrarily difficult functionality into the program.” He added that, with Ethereum, there’s a complete computational machine running within every node of the network.

In an article titled “Programmable Blockchains in Context: Ethereum’s Future,” published in the ConsenSys Medium channel, Vinay Gupta describes the potential of Ethereum as a next-generation blockchain platform.

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Bitcoin Doesn’t Waste Electricity, It’s Used for Security

A common criticism often thrown at Bitcoin is its heavy use of computing power, which in turn requires a large amount of energy. Some critics of the system believe that power is being wasted on useless computations that don’t contribute much at all to society, but this line of thinking misses the point of why Bitcoin works in the first place. Mastering Bitcoin author Andreas Antonopoulos gave a talk on consensus algorithms and Bitcoin at University College London (UCL) over the summer, where he argued against this common misconception about Bitcoin’s supposed wastefulness.

Electricity Underpins Bitcoin’s Security Model

The key point that some individuals miss when it comes to the electricity used to mine bitcoin is that the electricity is what provides the security for Bitcoin’s decentralized ledger. Without it, the miners who audit the ledger and create new blocks would be far less trustworthy. The loss of trust would come from the low barrier of entry to bitcoin mining. Antonopoulos was able to explain this point during his talk at UCL:

“You will hear people say that Bitcoin wastes electricity. Bitcoin does not waste electricity. Bitcoin uses electricity to underpin the security function because it creates an economic system whereby in order to participate you have to incur cost. And by incurring cost — the only reason you would incur cost is for the possibility of reward, and the possibility of reward is determined by whether your block meets the consensus rules.”

The cost of electricity essentially acts as a CAPTCHA on steroids for anyone who wishes to create new blocks on the Bitcoin blockchain.

Bitcoin’s Game-Theoretical Equilibrium

Many people view Bitcoin as a strictly technical innovation based on code, but the reality is the game-theoretical attributes of the system are what hold everything together. Antonopoulos explained how the cost of hashing power on the network is a vital part of Bitcoin’s incentive structure that keeps everything running smoothly:

“You spend money, and if you play fair by the rules, you get money back. If you spend money and you try to cheat, you don’t get money back, which means you lose money, so therefore, it doesn’t pay to cheat. And that simple, game-theoretical equilibrium is the core of the Bitcoin consensus algorithm.”

Later in the talk, the author of Mastering Bitcoin added a more direct explanation of how the electricity used to mine bitcoin aligns incentives and is not wasteful:

“You align the interest of the miner, who is ‘wasting’ electricity or using electricity, with validating the consensus rules.”

Bitcoin’s Hashing Computations are Not Useless

The key point to take away from this excerpt of Antonopoulos’s presentation is that all of the hashing power pointed at the Bitcoin network is not useless. All of that processing power and electricity is, essentially, being used to create a new public good — the blockchain. Until there is an alternative to proof-of-work that is proved to be secure enough to power a global, decentralized ledger, it would not be correct to call bitcoin mining useless or wasteful — unless, of course, you don’t think Bitcoin provides any value to the world.

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Bitcoin Price Hits 2015 Highs Led by Chinese Exchanges

On Monday afternoon, the price of bitcoin experienced one of its fastest spikes of the year when it rose from $340 up to over $360 on many exchanges before settling back down to around $355 as investors took profits. Over the past 24 hours, the price has risen over 10%, on average, across many of the exchanges.

As is typical with a speculative investment such as bitcoin, when the price starts rising, others that have watched on the sidelines begin to experience a phenomenon known as the fear of missing out or FOMO. As the price continues to rise, more people get on board, which further exacerbates the speed in which the price increases.

The jump over $360 sets a new all-time high for bitcoin in 2015 and is also a nearly 50% increase in price growth in one month.

As has been the case since September, China is leading the charge, with the price trading anywhere from $10-$15 above the rates on U.S. and European exchanges.

China is experiencing unprecedented amounts of growth. On October 30th, Jack C. Liu, the Head of International at OKCoin, said, in a tweet, that it had been the “busiest day of the year @OKCoinBTC as #Bitcoin trades to 2015 high of $344. No clawbacks on futures, no downtime. Great day for us & industry.”

Two days later, he went on to reveal that OkCoin had seen incredible demand for accounts on the exchange:

Incredible new user growth for @OKCoinBTC USD and CNY. Two dozen plus handling KYC and customer service. We can onboard within 24-48 hours.

— Jack C. Liu (@liujackc) November 2, 2015

While he didn’t provide any concrete numbers, he did comment last week on what was driving the adoption.

“Some Chinese traders are expressing a view on the CNY exchange rate after the last devaluation and you have interest by mainland speculators to move to other assets after the stock market fallout,” he explained in an interview with Bitcoin Magazine.

Jacob Donnelly is a full-time product manager and freelance journalist covering stocks, business and bitcoin. He runs a weekly digital currency and blockchain newsletter called Crypto Brief.

Photo Stefan / Flickr (CC)

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New Data from OTC Trading Desks Reveals Millions of Dollars in Bitcoin Traded Off Public Markets

Over-the-counter (OTC) trading provides a way to efficiently trade larger amounts of bitcoin without driving down the overall market price. Traders using the OTC markets to buy and sell bitcoin are matched directly with a counterparty to execute the trade, rather than broadcasting their trade to the larger markets. These trades are usually conducted by a broker, who performs the function of matching buyers with sellers or even executes trades on its own behalf.

OTC trades are often preferred by larger traders or institutions who want to open or exit a position without revealing their intentions to the market or affecting the market price. For example, many large miners and payment processors use OTC trades to sell the bitcoin they acquire to interested investors without flooding the exchanges. Because of this, OTC trading has always played a large role in the Bitcoin ecosystem, but the extent of that role has been largely unknown until now.

ItBit releases third quarter OTC report

ItBit is currently the only bitcoin exchange with a formal OTC trading desk, although there are other financial companies such as Genesis Trading that provide OTC trading services in bitcoin. These brokers and trading desks typically deal in trades of 100 BTC or more.

ItBit, (the first bitcoin exchange to receive a banking charter), recently released its third quarter OTC report with details about its trading volumes:

Total Bitcoin Volume Traded: 61,853 XBT
Total USD Amount Traded: $15 Million
Average Daily Trading Volume: 1,100 XBT
Average Month-over-Month Trading Volume Growth: 71%

“There is no public data available in the digital currency OTC market, so it is hard to determine where we stand,” itBit Director of Trading Bobby Cho told Bitcoin Magazine.” By publicly publishing our key OTC trading data on a monthly basis (trade execution, volume-traded, etc.), we aim to bring much-needed transparency to this market.

“Our hope is that other venues will join us in releasing public data, as the ultimate goal here should be to provide OTC traders with greater price discovery and fair market value,” Cho said.

Genesis trading leads in trading volume

Genesis Trading, a subsidiary of Digital Currency Group, currently leads the OTC bitcoin market in volumes traded, but doesn’t publish quarterly statistics.

“We typically trade over $10 million worth of BTC OTC per month,” Genesis Trading CEO Brendan O’Connor told Bitcoin Magazine.

Coinbase Exchange is looking at OTC type services

Coinbase, one of the larger exchanges and wallet providers, is actively looking at ways to provide some kind of a “white glove service” to prevent larger trades from moving the market price.

“We’re constantly looking at ways to improve our users’ trading experience, and adding features that facilitate large trades without moving the market are definitely on our radar,” Coinbase Exchange Product Manager Adam White told Bitcoin Magazine. “In addition to OTC trading we’re evaluating other, potentially superior, ways of facilitating those types of trades.”

BTCC finds other ways to provide an OTC service

One of the world’s largest exchanges, BTCC, does not have a formal OTC trading desk but understands the importance of having some kind of “buffer” to prevent price slippage caused by larger orders.

“BTCC doesn’t offer OTC trading per se, because our exchange is liquid enough to fill large orders without any issue,” Greg Wolfson, Business Development Director for BTCC told us. “We also offer iceberg orders through our API, so large orders can be filled using that option as well.

“We operate one of the largest mining pools in the world, so occasionally BTCC does facilitate OTC transactions for individuals who want to purchase large blocks of coins,” Wolfson said. “Additionally, we offer the option to purchase ‘new coins’ through our platform. These coins have a minimal transaction history, which makes them appealing to some in the bitcoin community, who regard ‘new coins’ as something akin to a proof set, like those offered by national mints around the world.”

OKCoin’s Head of International Jack C. Liu understands the importance of OTC and market price buffers and told us, “We have not entered OTC trading as of yet. We think itBit is doing a good job of growing the market. The liquidity for larger sized trades at tight prices is there. That’s good for the industry.”

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