Crypto — Coming Into Its Own

By Jenny Shaver 

A look at indicators of industry maturity and assessing the right kind of investment risk.

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(This article is adapted from a keynote speech delivered at the April, 2019 Crypto Invest Summit.)

I often get asked, whether it’s by former colleagues, or people I meet at social events, or even my dad, “Why would people invest in crypto? It seems risky.”

Depending on your investment strategy, sure, it’s risky. But…it’s a different kind of risky than it was even two years ago.

So, what’s changed?

Crypto asset performance isn’t correlated to any other asset class. It doesn’t move with fiat inflation or commodities prices. It’s not tied to the performance of a company like a security. That inherently creates risk but also opportunity for significant gain. This is a risk that we as an industry weather and accept.

The perceived risk my dad is referencing has less to do with crypto asset volatility and more to do with the perception that the crypto industry reflects the lawless, undisciplined behavior and unbridled speculation akin to the caricature of the wild west.

This perception is inaccurate.

I was having a conversation with a colleague about this very topic and he said,

“Our industry isn’t in a state of chaos like The Wild West. Our industry is more analogous to The Space Race.”

John F. Kennedy said of The Space Race, “We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard.”

Blockchain technology attempts to solve previously unsolvable problems. The complexity of the technology and the nascent nature of the regulatory framework, requires new and emerging expertise. It requires risk takers to set new precedents.

This pursuit has resulted in a pouring in of talent and capital which have given rise to increasing competition and meaningful industry advances. We are seeing this manifest via several indicators of industry maturity.

Broader Adoption

Despite the crypto winter, or bear market, or whatever we want to call 2018, we saw a nearly doubling of the amount of individuals who hold crypto assets. A survey published by Forbes suggests that crypto holders are skewing older and more affluent than previously thought.

UTXO analysis conducted by Delphi Digital suggests that most crypto holders who held a position longer than five years largely sold off their holdings, partly contributing to the downturn, but clearing the way for new investors seeking engagement with new types of products.

From an institutional perspective, traditional financial services and crypto financial services are converging. We are seeing validation of crypto assets in traditional companies incorporating crypto services or blockchain infrastructure.

Institutional adoption also extends to partnerships and service providers for crypto companies. Just in the past 12 months, I have seen an increased willingness of vendors and service providers to work with crypto companies. Companies who were saying “no” to providing services for us 12 months ago, are now actively trying to work with us.

Compliance

US-based crypto companies have made significant strides to create risk and compliance programs that are comparable to traditional financial institutions.

This includes a robust KYC/AML program, customer data protection standards, SOC compliance, compliance monitoring of blockchain addresses, and dedicated resources to oversee compliance programs.

As our industry attempts to navigate its purpose of removing barriers for transferring value, even regulatory barriers, compliance programs at this stage of our industry maturity, are a necessary step for broader adoption and mitigation of regulatory risk.

Insurance

Insurance has been a hot topic as of late because it’s a relatively new advancement in our industry. But it’s meaningful.

The fact that insurance providers are willing to underwrite affordable insurance policies for crypto-specific operations is a strong indicator that we as an industry are demonstrating the safety of holding crypto assets.

I urge investors to ask critical questions about the specifics of insurance programs — the coverage amount, incidents covered, and the claims and payout process and timeline.

The good news is that as our industry continues to prove itself, the competition amongst insurance underwriters will increase, which, in turn, will drive down costs.

Market Data Integrity

Our industry is dealing with our own data integrity issues just like any other high volume, high velocity industry.

Recognizing these gaps and the dependence on reliable market data to drive participation, there has been a surge of data research companies dedicated to improving the quality of market data.

The recent incident of BitWise calling out CoinMarketCap for overstating trading volumes, is a great example of our industry’s maturity in this area.

This is significant not just because companies like BitWise are expending resources to conduct due diligence on our industry’s leading data providers, but also because of CoinMarketCap’s acceptance of accountability to address the issue and improve their product.

It demonstrates that we are holding ourselves to a higher standard, and that investors will have increasingly accurate sources of information to make informed decisions.

Response to Scalability Challenges

JPMorgan announced earlier this year that it is investing in its Quorum blockchain infrastructure to facilitate payments in a more efficient manner using its dollar-backed JPM Coin.

It’s currently being piloted with a few institutional clients but is promising to revolutionize their payment processing.

To realize this potential will require blockchains to dependably support concurrent transactions at a scale that is not yet possible, or at least not yet largely practiced and tested.

Our industry is investing significant resources to solve this problem, and promising solutions are surfacing.

A second layer protocol solution, Lightning Network, is perhaps the most exciting advancement in the race for scalability.

For crypto to deliver on its potential of revolutionizing the transfer of value on a global scale, it must rise to meet the challenges of scale.

We’re working on it.

More Sophisticated Investment Products

What I see as the most exciting indicator of market maturity is the increasing diversification of product offerings.

Interest-bearing accounts are seeing promising early performance, futures and options are now available on select exchanges, as is trading on margin, and ETFs are on the near-term horizon.

What I have seen is an industry response to the unique nature of crypto assets and the needs of crypto holders. In crypto lending, for example, simply offering a crypto-backed, USD loan, does not address all market uses cases.

If 2018 has taught us anything it’s that we need products that drive market engagement in both bear and bull markets.

Our industry now offers several ways for investors to participate — directly through investing in crypto assets, less directly by offering fiat capital pipelines for interest-based products, or indirectly through investing in the growth of crypto companies and projects.

These options are allowing for a wider breadth of investor participation with varying risk appetites.

I return to the question, “Is crypto investing risky?”

When we empower a company like Charles Schwab to manage our wealth portfolio, we know there is some risk in the investment strategy but we don’t worry about them losing or mismanaging our money.

There are enough responsible companies in the crypto industry that can provide the same amount of assurance about the handling of your crypto assets. I encourage investors to seek out reputable companies and ask tough questions about their operations due diligence. Watch how companies respond to industry incidents like a hack or key compromise event. Our industry is still young and we’re still learning our vulnerabilities. The good companies will have a disaster recovery procedure that cure customer losses.

We have seen what happens when more resources are deployed to our industry. The result is more talent, innovation, and increasing sophistication that results in better products and better opportunities for investors.

Everyone wins.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of SALT Lending.

Considerations for Filing Taxes as a Crypto Holder in 2020

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Disclaimer: This article is for informational and educational purposes only and does not constitute tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors when filing your taxes.

While the tax deadline has been extended from April 15, 2020 to July 15, 2020 due to the COVID-19 crisis, it’s still a good idea to file as soon as possible, especially for those taxpayers who are expecting a refund. For crypto holders, it’s important to note that for the first time ever, this year every tax-paying American will be getting quizzed explicitly on their crypto activity. Indeed, the 2020 season will mark the first time the following question appears right at the top of the 1040 tax form:

“At any time during 2019, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency?”

This year however, federal tax forms ask about your bitcoin and other cryptocurrency activities, the latest move to more directly specify details for cryptocurrencies. The IRS is focusing on those who may be underreporting their crypto transactions or not reporting them at all.

What does this new sentence in your tax form this year really mean, and how should it impact how you report crypto in your 2019 taxes? To help understand, we asked SALT experts, along with our partners and friends at Node40TaxBitBlox and Friedman LLP.

Know Your Cost Basis

The first thing to know is that one is taxed on profit — the key figure to find out is the gain number. The most recent set of guidance from the IRS was released in October 2019 and it included a few methods of “cost basis assignment” mentioned therein. For those who aren’t accountants, this means one of a few ways to track profits and losses. Know your cost basis and what the IRS deems taxable. Most importantly, know your “gain number.”

Cost basis means the price at which you initially acquired an asset. For example, if you hold one BTC today, which you previously purchased at $9,000, and the price today is $11,000, the cost basis is that acquisition price of $9,000. So, the unrealized gain number (without selling) and the realized gain number (if you were to sell) is the net between today’s price and the cost basis, meaning in this case $2,000.

Cost basis can also mean the fair market value of the asset on the date of acquisition. For example, you received one BTC from work as compensation for services on 1/1. The value of BTC on 1/1 is $9,000. Later when you sell one BTC at $11,000, the then fair market value of $9,000 would be the cost basis, and you would realize $2,000 gain. The fair market value can be determined using a reasonable method, such us prices on any third-party independent trading platforms, as long as the same method is applied consistently for all your crypto transactions.

Loan collateral does not count as a transaction

For SALT customers, it’s important to know that your crypto held as collateral for a cash or stablecoin loan does not count as a taxable transaction unless your collateral is liquidated; a liquidation is a taxable event. If your collateral increases in value during the course of your loan term, this does not count as a gain or taxable action unless the collateral is sold. According to Friedman LLP, should you have a business loan with SALT, take note that business interest is deductible and subject to limitations (generally 30% of adjusted taxable income if the business had more than $25 million gross receipts). While interest on personal loans is generally not deductible, it may be deductible if you are self-employed and you use the loan for your own business or if you are employed but you use the loan to make other investments that generate income (the loan then becomes a business loan or investment loan).

First-In-First-Out (FIFO)

First-In-First-Out (FIFO) is the default accounting method. Your cost (the price at which you purchase a crypto asset) is calculated at the initial purchase date. So, if you buy a Bitcoin in January, another in March, and sell one in June, the “cost” isn’t from March, but January. The first “in” is the first purchasing transaction. First “out” is the first one sold. With digital currency the date of purchase and sale are clear in the coins and tokens themselves, making reporting much easier.

The aforementioned guidance from the IRS clarifies how to calculate your gain number.

By way of example: assume you purchase one BTC on 1/1 for $10,000, one BTC on 2/1 for $15,000, and then sell one BTC on 3/1 for $12,500 — your taxable gain or loss using first-in-first-out is computed by taking $12,500 of proceeds less your cost basis of $10,000 (which comes from the earliest purchase of BTC). This results in a $2,500 taxable gain.

While FIFO is the default method, the IRS makes it clear that the Specific Identification method can also be used if a taxpayer can document unique digital identifiers such as a private or public key. The acceptance of specific identification is favorable for taxpayers, as it allows taxpayers to assign their highest cost basis lots first, which in return minimizes their tax liability.

More details on this specific topic can be found over at Taxbit’s blog here.

Be Careful Using 1099s from Exchanges

If you have been buying crypto through exchanges, the exchange may have sent you a 1099-K or 1099-B form. Even if you did not receive these documents, all the 1099 methods of calculating income are still valid for you. The exchange calculates and reports gross proceeds, meaning that it is on the taxpayer to provide information on the cost they paid to acquire said assets and reported in the capital gains section, otherwise known as IRS 8949.

Specifically, form 1099-K reports gross proceeds, which the IRS interprets as income. The number reported on form 1099-K is not counted as income however, as cryptocurrency trading carries cost basis and is to be reported in the capital gains and losses section of a taxpayer’s tax return. Form 1099-B reports cost basis when available and makes it easier for you as a taxpayer to complete your required IRS 8949. Some cryptocurrency exchanges may not send you anything at all. Regardless of which form you receive or don’t receive, your responsibility as a taxpayer is to use the information to complete your IRS 8949, which reports your capital gains and losses.

Verify the Data You Receive

The crypto industry is still relatively new and while the exchanges and trading technology may have some advanced reporting features built in, the institutions built around that technology are still new. With traditional securities, there is a clearinghouse, a broker, and well-established financial statements that make it easy to determine your taxes. With cryptocurrency, many of the exchanges are still in the process of refining external reporting standards. This means that, as a user, the level of completeness in reporting expected from NYSE cannot possibly be replicated by virtually any new institutions.

According to data by NODE40, the reports generated by cryptocurrency exchanges will be incorrect for about 80% of cryptocurrency traders. We can’t fault the exchanges because there is simply no way for them to determine the cost basis of the assets you’ve been moving around. For this reason, it’s important to consider using a third-party platform that can calculate the gains and losses on your cryptocurrency as you move it from exchange to exchange or wallet to wallet.

Conclusion: Educating Ourselves is Essential

Crypto accounting and tax reporting can be daunting and complex, which is why staying engaged with news and trends is essential to understanding the evolving landscape of crypto taxation. Especially in the U.S, the IRS is taking more steps to introduce greater guidance and clarity. But without proper education and trained professionals, navigating crypto tax can be tough.

Tax preparers and investors rely on 1099 forms in traditional markets — crypto is no different. Without it, the burden of responsibility shifts to the investor, requiring them to keep track of all of their crypto activity for the year. This includes tracking every crypto-related transaction, like fair market value based on the date of purchase or sale of assets.

All of this information is vital for preparers to determine cost basis and properly calculate gains and losses. Therein lies the primary challenge. Some crypto accounting and management platforms have emerged to solve this growing industry need for smarter solutions. Industry giants need reliable, accurate and smart tools.

Because crypto remains a new field and exchanges are widespread around the world, not all exchanges report in the same method. This is why the savvy users will double check the work of the exchange, a task for which there are now new tools available. These errors can have a massive tax impact, particularly when it comes to tracking the cost of acquisition of the asset over time. Luckily there are tools that exist that can provide traders and crypto entrepreneurs with intelligent support.

Taxes are a part of life. This year hundreds of millions of Americans will be reminded explicitly of the existence of digital assets — a good thing for the industry that will drive greater awareness and adoption of cryptoassets. If you’re already a crypto hodler or trader, diligence is key to successfully filing your 2019 taxes this year. Whether you use a third-party tool or rely solely on exchanges to track the movement of your assets, it’s crucial that you know your gain number and verify its accuracy, that you review the IRS guidelines, and that you use trusted sources to educate yourself on what to report and how to go about it.

SALT Adds DASH as Collateral and Offers a Way to Maintain Your Masternode

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We’re proud to announce that we now accept DASH as collateral.

Better yet, if you own DASH that’s being used for a masternode, we’ve also developed a way for you to maintain your masternode status, voting rights and payouts and still use it as loan collateral. To do so, follow these instructions before you deposit your DASH into your SALT collateral wallet.

Like other cryptocurrencies, Dash enables anyone, anywhere in the world to make quick, easy and cheap payments at any time without going through a central authority.

Given its long-term viability, its numerous use cases, and its level of adoption, Dash is an appealing collateral form for our platform. Aside from that, we chose Dash as our next collateral type for two primary reasons:

  1. We support the Dash community and its mission
  2. We respect Dash’s two-tier network and use of masternodes to maintain the health of their blockchain

The Dash Mission

In his interview with Cointelegraph, CEO of Dash Core Group Ryan Taylor notes that Dash offers “tremendous value to society,” particularly for people that live in areas with minimal financial freedom and poor quality financial systems: “I would love to see Dash first adopted in some of the poorest and most financially oppressed markets in the world, so that as Dash grows, we bring those people up with us.”

By providing increased financial freedom, secure technology, and irreversible, speedy transactions, Dash is increasing access for people to participate in the global economy regardless of where they’re based. We support this mission and recognize it as one of the most significant ways blockchain technology can change people’s lives — and the world — for the better.

The Dash Network and Masternode System

In a separate, more recent interview with Anthony Pompliano, Taylor explains the concept of masternodes and how unlike the Bitcoin protocol, which allocates 100% of the network’s revenue toward mining, the Dash protocol is designed such that the block reward is split into three parts: 45% of the revenue goes to miners and 45% goes to masternode operators who service the network. The remaining 10% goes to a proposal system where the proposals are voted on by the masternode operators and the highest ranking proposals pay out as part of a monthly budget. This two-tier infrastructure ensures that network participants are incentivized to “keep the network happy.” Masternode operators in particular have a vested interest in doing what’s best for the network to maintain its health.

In explaining the masternode system further, Taylor notes that you have to prove ownership of 1,000 DASH in order to obtain masternode status, though he makes it clear that “as soon as that money is moved, your node downgrades immediately.” While that’s true in most cases, we’ve developed a way for you to maintain your masternode status even after you move your Dash to the SALT platform.* With these step-by-step instructions, you can custody your Dash with us and still run your masternode.

For questions about taking out a Dash-backed loan or to custody your Dash with us, visit us at https://saltlending.com/ or call us at +1 720–897–3710.

  • Dash used as collateral for a loan with SALT may be liquidated, in whole or in part, according to the terms of your Loan Agreement. SALT is not responsible for maintenance of a masternode or any disruption to or downgrade of any masternode for any reason, which may result from a liquidation of loan collateral or any other applicable term or terms of your loan agreement.

SALT Now Offers Loan-to-Value (LTV) Options Up to 70%

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We have increased our range of Loan-to-Value (LTV) options, allowing you to tailor the loan product that is right for you. In addition to our existing 30%, 40% and 50% LTV options, you can now select up to a 60% or 70% LTV, allowing you to unlock even more value from your crypto holdings.

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While starting your loan at 70% LTV means you need less loan collateral to get started, it may lead to higher risk for you as the borrower. This is why SALT has been focused on creating tools that allow you to manage the risks associated with your loan based on your own tolerance.

● Customizable notification system — When you sign up for a SALT account, you automatically receive email alerts about your account activity. From our website or mobile app, you can customize your notifications even further by opting in to calls, texts and/or push notifications.

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● Loan-to-Value (LTV) monitoring system — This near real-time system reports your loan health (in LTV) and portfolio value through the life of your loan. Even when you aren’t watching your portal for updates, our automated notification system helps keep you up-to-date via calls, texts and emails so you’re alerted during volatile market conditions.

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● Mobile app — Our mobile app allows you to register for an account, monitor your collateral and loan status, and deposit or withdraw assets.

Download the app for iOS and Android.

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● TrueUSD and USDC — With the recent addition of these stablecoins to our accepted collateral types, you can stabilize your LTV at anytime by transferring TrueUSD, USDC, or a combination of the two directly to your account — even on nights, weekends and holidays.

SALT Expands Lending Opportunities to Businesses in Australia

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Having participated this week in the ADC Global Blockchain Summit held in conjunction with the South Australian Government and the Australian Digital Commerce Association (ADCA) in Adelaide, SALT is actively incorporating its technology services into the burgeoning Australian market. With a particular focus on strategies and practical applications for business growth via blockchain technologies and systems, SALT spoke to the Summit’s key topics from experience intersecting business, public policy, and the regulatory environment.

Australia has demonstrated a keen interest in developing its blockchain industry. The Ministry for Industry, Science and Technology today announced a blockchain roadmap with AU$100,000 in federal funding for “regulation, skills and capacity building, innovation, investment, and international competitiveness and collaboration.” Working directly with blockchain businesses at the ADC Summit, SALT is deploying its Software as a Service packages, which allow traditional companies to easily add cryptocurrency and blockchain offerings into their product portfolio including lending technology, wallets, monitoring, and blockchain analysis. With Australia’s continued commitment to developing blockchain services responsibly, SALT looks forward to working with interested parties and stakeholders across the Australian market to bring their vision into reality.

Crypto companies looking for extra liquidity to expand their businesses, such as exchanges or mining companies, can join SALT and apply for a crypto-backed loan.

As SALT continues to grow, we remain focused on further expanding our technology products, allowing both crypto and traditional companies to integrate blockchain services into their software stacks.

Evaluating Interest-Bearing Crypto Accounts

By Zev Shimko, Jenny Shaver and Blake Cohen

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The latest offering in crypto custody is an interest-bearing crypto account. Although marketed similar to cash deposit savings accounts offered by traditional banks, the structure of this type of interest-bearing crypto product is more closely analogous to securities lending and should be viewed as such when assessing the risks associated with placing crypto in an interest-bearing account.

There are certainly benefits to interest-bearing crypto accounts — namely the ability to earn a return on a custodied asset beyond its possible appreciation value. However, those interest benefits aren’t without their own risks. Here are some important considerations when assessing if an interest-bearing crypto account might be suitable for your risk appetite*:

When opting for an interest-bearing product, your crypto assets may be commingled (where funds belonging to one party are mixed with those of a second party), and rehypothecated (practice whereby a broker or lending agent uses assets in their possession, but owned by their customer, to invest with or lend to a third party). In this structure, your funds may be taken by your custodian (acting as a lending agent), pooled with other assets owned by other customers of your custodian, and lent to a third-party. As a result, and in return for interest payments, you may forfeit several rights associated with your crypto assets. For example, you may be unable to quickly withdraw your crypto in whole or in part and you may lose, due to the commingling of your assets with assets owned by other customers, the ability to independently verify the security of your assets on-chain. Instead you may be supplied with a percentage statement or value statement regarding your interest in the crypto collateral you deposited into your account.

With a traditional bank savings account, your cash deposits may be lent to other financial institutions and vetted borrowers who have a multitude of options for generating wealth with the borrowed funds. In many cases, these traditional bank accounts are also insured and operate within strict regulatory guidelines and limitations on the collateral percentage, number of parties, among other restrictions for and to which the deposited assets can be lent, distributed, and relevered. These regulatory guidelines and restrictions prevent traditional financial intermediaries of this type from participating in some high-risk lending behaviors when it comes to their customer assets, but do not, generally, prohibit the rehypothecation of deposited assets under certain conditions. These intermediaries then cover their costs, not by the fees charged on the interest-bearing customer accounts, but through the income generated by lending and investing those assets during the rehypothecation process. While this process seems straight forward and analogous to what might happen with the crypto you deposit in an interest-bearing account, some additional crypto market specific comparison will help to highlight the difference in rehypothecated use between cash denominated and crypto denominated accounts.

While there are certainly financial institutions which take short and long positions on various currencies, the typical use case for rehypothecation in cash accounts is the lending or investment of the cash deposited directly to a third-party and not for direct speculative purposes in that asset. However, for many institutional crypto holders, the primary use case for generating returns with crypto assets is often to take a speculative position on the asset itself. An institution with a bearish view on the market, for example, may look to short sale opportunities — borrowing crypto and immediately selling it in hopes of a future purchase at a lower price to close the position. The institution will only net a profit if the value of the crypto falls below their initial sale price, which means you and the counterparty borrower are betting on opposing outcomes. As a HODLer of crypto assets, it’s important to understand the motives of each party involved aside from what traditional rehypothecation in cash accounts might suggest. This comparison highlights the operational difference in the rehypothecated use of cash deposits and crypto deposits in interest-bearing accounts and should motivate anyone seeking to deposit their crypto into such an account to carefully inspect the intended and permitted uses of the assets they plan to deposit.

Any custodian or intermediary entrusted with your crypto may be required to act in a responsible capacity either by their position as a custodian or fiduciary or by some applicable regulatory regime. However, there are still strategic and operational choices which may put your assets at risk. For companies offering interest-bearing crypto accounts, how might they be regulated? Traditionally chartered banks, for example, are regulated by the FDIC and must carry insurance and maintain fractional reserves to address withdrawal, and other requests without becoming overextended. Lending intermediaries are also often required to maintain capital reserves to cover risk exposure of defaults in capitalized accounts and through bonds or other insurance policies.

Given that crypto regulation is scant, the savvy crypto account holder may want to make a detailed investigation of how and through what methods companies offering interest-bearing crypto accounts have structured their risk mitigation. For example: Does the company carry insurance for your assets? What is the claims process in the event of an incident? In a relatively nascent industry, transparency of risk mitigation protocols should be table stakes for any interest-bearing products. In addition to the primary lender or custodian involved, downstream market participants face similar responsibilities as any loss throughout the ecosystem may lead to direct counterparty effects.

As an extension of assessing operating risk, a savvy account holder should also understand how counterparty risk is being mitigated and which or what counterparties may be involved. When it comes to borrowers of your crypto assets, who are they and how have they been vetted for their own operational risk? Should a third-party default on their obligation, what are the implications for your account? For loan agreements, it’s important to know how they are being structured to mitigate default risk. For example, in securities lending, borrowers are often required to post collateral. In this case, it’s important to understand what the lender is doing with the collateral and how the collateral account is being managed. Is the collateral itself being rehypothecated to earn additional returns? If so, what are those direct or indirect investments and how risky might they be? Transparency and accountability are key and so is a keen eye for the fine print.

Since all-time highs, the price of Bitcoin has dropped roughly 80%, with the largest recent weekly drop of 22% and one-day drop of 12%, both in November 2018. Heightened volatility is no stranger in the cryptocurrency world as the market can turn meaningfully in a period of days, or even hours. It is important to take note of an extended lock-up period (or simply a delay in withdrawal) associated with any interest-bearing deposit account as any delay in or restriction on your ability to liquidate or transact your assets may subject you to additional market risk. Alongside normal course market volatility, an increase in borrowing crypto for the purpose of a taking a short position, especially if undertaken by a large subset of holders in a particular asset, may potentially exacerbate any downward pressure on price, heightening lock-up risk through increased intensity in negative peak volatility.

Before depositing crypto into an interest-bearing account, take a look at the fine print. Returns initially quoted may carry restrictions on the period of time they are available, may require additional deposits or transfers, and may have additional caveats regarding market conditions and other impediments. It is important to understand the process and any notice requirements or promises made by your lender or custodian for any changes to the quoted interest rate. Depending on the size of the custodian or lender, interest bearing accounts which carry guaranteed interest rates may require significant cash outlays by the custodian or lender as a cushion for the quoted returns. Understanding the custodian’s cash and balance sheet position may also be important depending on the amount of crypto being deposited.

There is a place for interest-bearing accounts in the crypto ecosystem and as the market matures so will the terms and safeguards associated with these accounts. In the meantime, you must seek transparency for how your funds may be distributed and how risks are being mitigated. It’s important that you request adequate information, and that you handle your crypto assets with a full understanding of the risks and tradeoffs. Happy HODLing.

  • None of the information contained in this post should be taken as investment advice or any suggestion for or against the suitability of any interest-bearing, custody, or other crypto currency product for any investment, diversification, or market strategy. Salt does not offer investment advice. Please speak to your advisor, tax accountant, and/or legal counsel regarding the suitability, risks, and legality of any crypto market position or strategy. Salt is not a bank and is not FDIC insured. Please see www.saltlending.com for additional information, references, and disclosures.

SALT CEO Bill Sinclair responds to Binance delisting

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Binance announced yesterday that it delisted SALT Memberships from its asset exchange. Binance’s announcement and action came as a surprise to SALT as we did not receive any information requests or opportunity to refute the inferences in Binance’s announcement. SALT adamantly objects to Binance’s announcement which provides the basis for which it delists a token but does not make any specific allegation against the list of companies, thus creating false negative implications.

Binance has not requested any information from SALT to enable Binance to make a decision relating to its now publicly listed criteria and acted irresponsibly in insinuating that any of the criteria is true of SALT.

SALT would like to take the opportunity to reaffirm our commitment to you, our products, and the blockchain industry. We sell SALT Membership units and offer refunds when they are purchased directly from us and not removed from our platform. This has been the preferred method of buying our Membership units since inception. A number of exchanges, including Binance, have made hundreds of thousands of dollars in fees by reselling our Membership units. SALT has never profited directly from any third party exchange activities. SALT Membership units have always been the primary vehicle for utility on our platform and we are committed to the expansion of this utility as our business grows. Today there are millions of SALT Membership units held on our platform by thousands of members.

SALT is a team of over 70 passionate, dedicated employees and professionals around the globe. We are proud to have the best customer support team in the business responding to phone, email and social media requests around the clock. Among our many employees is our talented and dedicated team of developers who have committed over 18,277,688 lines of code across dozens of software services in the year 2018 alone.

Additionally, SALT is continually enhancing its communication and today operates through a number of public channels including the following:

SALT has not and does not engage in fraudulent or unethical activity nor have we suggested publicly, without evidence or context, that any other company has done so. Binance never responsibly contacted SALT regarding any due diligence inquiries.

SALT is committed to responsible business practices. We pride ourselves on engaging with our customers, partners, regulators, and the media when it comes to requests for information.

We are dedicated to advancing blockchain technology and to building a healthy and sustainable crypto ecosystem. Two of our co-founders serve as members and advisors to groups that share a similar goal. These include the Organisation for Economic Co-operation and Development (OECD) and the Colorado Council for the Advancement of Blockchain Technology, created by Governor Hickenlooper. Additionally, we are an active member of The Digital Chamber of Commerce and frequently sponsor events that drive awareness and adoption of blockchain technology globally such as the Asia Blockchain Week, North American Bitcoin Conference and ETHDenver.

At SALT, we define success not by the number of exchanges on which we are listed, but by our efforts to help shape this new economy. We remain focused on product development and driving awareness and adoption of blockchain technology. Our goal is to provide our customers with the products and services they need to participate in the blockchain space. One of our core values, integrity, is matched only by another of our core values, grit. We will continue to work tirelessly to deliver outstanding products and services, and will not be moved off that mark by anyone, for any reason.

Thank you for your continued support, as together we remain focused on building a successful software services and lending enterprise.

Bill Sinclair

Interim President & CEO and Chief Technology Officer

SALT

Highlights from Davos 2019

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The annual World Economic Forum (WEF) concluded this past Friday in Davos, Switzerland. Attendees included top business leaders, political figureheads, and a variety of well-known celebrities with topics ranging from international trade, shifts in regulation, and emerging technologies. Throughout the week, participants discussed technologies like artificial intelligence, machine learning, and blockchain– SALT was there to focus on the latter. Here are some of the key blockchain-related takeaways from our week in Davos:

The blockchain fluff is largely gone — 2018 saw cryptocurrencies drop from a total market cap of $618.1 billion to $125.6 billion.* There were many projects built on the hype of 2017 and the crypto attendance at WEF last year was quite high. The “correction” has narrowed the list of blockchain companies involved, with only the more reputable projects in attendance.

Governments focused on blockchain technology — Various governments have been exploring ways to jump into blockchain technology and we are starting to hear some exciting announcements. One such announcement came from Bermuda, where Premier David Burt stated, “I’m proud to say that next week we’ll be making an announcement revealing that a bank will be set up in the country that will start accepting crypto and blockchain companies.”

Focus on the broad application of blockchain — It wasn’t all about crypto. In fact, a majority of the conversations focused on other applications such as healthcare, supply chain, and digital identities. Blockchain has the ability to provide an immutable, single source of truth — certainly an important attribute for industries dealing with sensitive data.

Blockchain companies are seeking regulation — We (blockchain companies) are not looking for loopholes in regulation or jurisdictions with thin legislation — it’s quite the opposite. We know that in order to grow as an industry and play a key role in society at large, responsible regulation is paramount. Throughout the week, SALT met with many government officials and economic organizations to help drive that conversation forward.

There has been a lot of behind-the-scenes work over the last couple years in our space and we expect some meaningful announcements to be made in 2019. We believe blockchain technology is here to stay and look forward to discussing its progress at Davos 2020.

*Data pulled from coinmarketcap.com

Safety through multi-signatures

Our community has voiced an interest in better understanding how we use multi-sig for our transactions and we wanted to pull back the curtain a bit to share how SALT prioritizes the security of crypto assets. So how does SALT execute on best-in-class security when it comes to crypto transactions? By building and leveraging a team with expertise in cyber security, accounting, and IT architecture.

To start with, what is multi-sig? Multi-signature (multi-sig) refers to the requirement that more than one key is present to authorize an action. The concept applies to physical or digital keys and has been around far longer than crypto.

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While the Bitcoin protocol inherently has built-in multi-sig capabilities that can be easily seen on the chain, Ethereum does not expressly define how multi-sig should be implemented. Ethereum implements multi-sig through smart contracts designed by individual parties. In SALT’s opinion, these remain largely untested and need to accumulate a history of safety, prior to adoption. Our Ethereum transactions are not based on a multi-sig contract, but on a multi-sig process and technology internally.

How does this happen?

When the ETH key is created it is sharded into M of N parts, using a mathematical process that allows it to be rebuilt, and the original key is thrown away. This results in functional multi-signature, even though it is not a multi-sig address like Bitcoin.

Then when a transaction is requested, it goes through several rounds of digital and physical security checkpoints.

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First the transaction must be initiated by a member on the SALT platform, or by our team internally. The transaction is then verified, reviewed, and ultimately approved by our accounting team. After the verification, a team of rotating signers place their keys (or key parts in the case of Ethereum) into a “digital safe” while a facilitator oversees the transaction. This group of signers changes with each transaction for added security. Given the key is broken up into an M of N series of sharded keys-parts, each separately encrypted, none of the participants will ever be able to see even a portion of a full key. Cryptocurrency kept within the SALT platform can never be moved by any one individual.

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Think of the process as a house with a physical safe inside. That safe requires several physical keys to open, and for the homeowner to be present for any access to the money to be permitted. Similarly, our process requires a number of key-holders, the digital safe itself, and then a facilitator (homeowner), all to execute the move.

At SALT, we ensure security through process and technology to provide security in all of our transactions.

Year in Review 2018

2018 was quite the year for SALT.

Between two public product launches, 32 event appearances, and the addition of new collateral types and jurisdictions, there’s no doubt we’ve accomplished a lot this year. When reflecting on how we did it, a few factors come to mind.

For one, we drank a ton of coffee (not literally but it was a lot) and even more La Croix. We also communicated a lot more — not only with each other, but with our community.

And most importantly, we grew. Not just in terms of our jurisdictions and team members but also in terms of our brand and vision.

For SALT, 2019 will be the year of expansion.

We know that crypto-backed lending is at our core and we’re proud of the business we’ve built. As we continue to maintain and grow our lending business, we’re also excited to expand our financial offerings to include products beyond lending.

On top of that, we believe in fostering the adoption of blockchain technology and that means making it more accessible. Right now, the use of this emerging technology seems to be limited to those who are experts in the blockchain space. We’re solving for this by developing a suite of applications that will enable businesses of all sizes — whether they are already in the blockchain space or are looking to enter it — to leverage this technology in a way that benefits them and their customers.

In 2019 we are focused on further building out these two components of the business and we’re excited for what that means for our company, you, and the future of finance.

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