Ethereum's EIP 1559 Is Coming

What you need to know today in crypto and beyond

July 7, 2021

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Today's must-reads

Top Shelf

IT’S OFFICIAL: Ethereum’s London hard fork is set to launch on Aug. 4 with block 12,965,000. The protocol update includes five Ethereum Improvement Proposals, most notably EIP 1559 and EIP 3554 that aim to counter various inefficiencies. Many Ethereum enthusiasts are excited for the release while others are cautious.

ETH OVER BTC: Goldman Sachs thinks ether, the native currency of the Ethereum blockchain, could overtake bitcoin in becoming the dominant "store-of-value" crypto. The company said ether’s use cases possess the highest “potential,” because Ethereum is the most popular development platform for smart contracts.

REVOLVING DOOR: Binance.US has hired Manuel Alvarez, former commissioner at the California Department of Financial Protection and Innovation as its new chief administrative officer. The Binance brand is facing increasing headwinds. Yesterday, Binance, a distinct entity from Binance.US, suspended payments from the European Union’s Single Euro Payments Area (SEPA).

THUMB DOWN: South Korean prosecutors have indicted Lee Jung-hoon, the former chairman of Bithumb Holdings, the corporate owner of the Bithumb crypto exchange, on charges of fraud. Lee allegedly swindled $100 million from a former business associate, according to an investigation report released by prosecutors.

–Helene Braun

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“Getting into a fully licensed regime is easier said than done.”

–Bitmex CEO Alexander Hoeptner on plans to enter the U.S. market, on CoinDesk's “First Mover.”

A message from CoinDesk

The Investor’s Perspective on the Bitcoin Taproot Upgrade

Taproot is a bundle of three upgrades to Bitcoin aimed at improving network security, privacy and scalability. At the same time, it poses some potential drawbacks to Bitcoin including risks of low adoption, unintended privacy shortcomings and Bitcoin community disappointment and fracturing.

CoinDesk Research's newest report dives into the economic impact and investment implications of the Taproot upgrade. Download the full report.

What others are writing...

Off-Chain Signals

–H.B.

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Putting the news in perspective

The Takeaway

Eric Adams, Mayor of Bitcoins

Eric Adams will be the next mayor of New York City. The former NYPD cop was declared winner of the Democratic primary yesterday, so unless there’s an improbable surge from his Republican opponent, cat rescuer Curtis Sliwa, Adams will take over from Bill DeBlasio in January following November’s general election.

I live in New York, and I hate to perpetuate the general media’s East Coast bias, but in this case, a mayoral election really seems to matter outside the city – especially for cryptocurrency businesses and traders. New York has some of the most restrictive cryptocurrency rules in the country at the state level, the much-bemoaned “Bitlicense.” That’s particularly onerous because New York City is a major financial center, and so the 2014 law has hampered crypto offerings by New York City-based entities, and to New York residents.

But Adams has been vocally pro-crypto, saying in late June that New York City would become the “center of bitcoins” under his leadership. Adams isn’t nearly as passionate about bitcoins as erstwhile mayoral rival candidate Andrew Yang is, and from his slight malapropism, it’s a fair guess he’s not exactly a crypto expert – though he did also speak positively about crypto in 2015, so some real credit there.

Instead, Adams’ promise (like his statements in 2015) came in the middle of a much broader endorsement of disruptive innovation. NYC, Adams said, should “become the center of life science, the center of cybersecurity, the center of bitcoins … We’re going to be the center of all the technology.”

In short, Adams seems to be more focused on well-paying jobs and a vital economy than on changes to the status quo of financial regulation. In many ways, that is hugely bullish for the sector, a sign that “crypto” is stealing some limelight from “Silicon Valley” as a synecdoche for innovation and growth. And New Yorkers were eager for that message thanks to an unemployment rate of 10.9% in May, far above the national rate of 5.9 %. That’s probably thanks above all to the loss of tourism during the pandemic. Tourism is a huge driver of the New York economy.

It’s also a meaningful signal locally given the 2019 progressive backlash against plans to build an Amazon headquarters in Queens, which had its justifications but was seen by some as anti-jobs. Adams is more of a centrist than those anti-Amazon activists, and has aimed mostly at appealing to blue-collar New Yorkers. Much of his platform is focused on small business, but the nod to tech is part of that larger promise of more and better jobs.

It’s not as if Adams has much sway on the crypto issue anyway: The Bitlicense was imposed by state legislators in Albany, and the New York City mayor generally has a contentious, if not outright hostile, relationship with the capital. His chances to get any changes on the Bitlicense are close to nil.

So if Adams actually wants to make New York City more of a “center of bitcoins,” his real options include the kind of programs he pursued as Brooklyn borough president, including investment in STEM programs for local students. It’s an uphill battle to get more hometown kids into the pipeline for the local tech industry, but if any city can pull it off, it’s New York, which has some of the most well-regarded public secondary schools and universities in the country.

It’s also possible that Adams’ quality-of-life measures could help attract new businesses or individuals to the city. Those particularly include enhanced child-care services and a firm-but-just approach to violent crime, which has been edging up in the city. The timing would certainly be right, given an outmigration from the Bay Area and a historic dip in rents in New York.

But those are ultimately edge issues – New York’s advantages for crypto or any other business are bigger and longer-lasting than any one mayor. That’s made clearest by the comparison to Miami, which has also made a recent push to attract crypto businesses, but has some serious disadvantages in the effort. To pick just one, only 29.8% of Miami-Dade county residents have a bachelor’s degree, according to census data, compared to 37.5% in Brooklyn and 61.3% in Manhattan.

Traditionally, that difference in talent pool has been a determining factor: Businesses hoping to hire the very best people, which usually includes the most innovative companies, are more likely to locate near big talent pools. That’s why despite the hassle of the Bitlicense for companies that move crypto, NYC is already the home to important blockchain firms, including Chainalysis, Grayscale and (oh, right) CoinDesk.

Of course, that calculus has itself changed dramatically during the pandemic. The new acceptance of work from home means companies are more likely to hire employees who don’t live near their headquarters, especially for white-collar tech and information jobs. New York City currently stands to lose as much as $720 million in tax revenue from commuters who aren’t working in the city. So while he may make some efforts to make New York into a friendlier city for crypto, Adams’ most important task will be simply keeping New York City a place where people actually want to live.

–David Z. Morris

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