The Bitcoin Price Could Get A Massive Boost From This App

&l;p&g;&l;img class=&q;dam-image bloomberg size-large wp-image-41734837&q; src=&q;×0.jpg?fit=scale&q; data-height=&q;640&q; data-width=&q;960&q;&g; Bill Barhydt, founder and chief executive officer of Abra, speaks during the Consensus: Invest event in New York, U.S., on Tuesday, Nov. 28, 2017. (Michael Nagle/Bloomberg)

&l;span style=&q;font-weight: 400&q;&g;Yesterday, Abra officially &l;/span&g;&l;a href=&q;; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;announced&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; that their users can now gain exposure to a variety of traditional stocks, commodities, and ETFs through the company&a;rsquo;s mobile app. Previously, the company only allowed users to send, receive, and hold a variety of fiat and crypto currencies through the app.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;While this may seem like another entry in the overcrowded mobile finance market on the surface, Abra has the potential to have a major impact in terms of the global, permissionless availability of traditional investment opportunities. Additionally, the fact that Abra is built on Bitcoin-based smart contracts could have huge implications for the future price of bitcoin.&l;/span&g;

&l;b&g;What is Abra?&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;Abra was originally founded by former Netscape director &l;/span&g;&l;a href=&q;; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;Bill Barhydt&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; in 2014 and took home the top prize at the 2015 Launch Festival. The pitch at the time was as a sort of global, limitless alternative to Venmo where cross-border payments could be made instantly at low cost.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Abra&a;rsquo;s global availability is made possible through the use of &a;ldquo;crypto collateralized contracts&a;rdquo; that allow users to hold money on their own phones. To reiterate, the keys to the money are literally stored on the phone. This is not like PayPal or a bank where the money is held by a third party and the user simply sees a number associated with their account balance in the app.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Abra&a;rsquo;s crypto collateralized contracts are built on top of Bitcoin. A 2-of-3 &l;/span&g;&l;a href=&q;; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;multisig Bitcoin address&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; is created, and the three parties who can sign transactions from that address are Abra, the user, and a third-party oracle who sets the exchange rate between bitcoin and whichever asset the user wishes to hold. When a user turns their deposited bitcoin into U.S. dollars or any other asset, they&a;rsquo;re actually creating one of these multisig addresses.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Of course, all of this is hidden from Abra users. They don&a;rsquo;t know they&a;rsquo;re holding bitcoin in a smart contract rather than the real assets in their portfolios (unless they read the fine print).&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;This setup means Abra is not a custodian of funds, &l;/span&g;&l;a href=&q;; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;which allows the company to avoid a large number of onerous regulations&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; and provide availability in 155 countries. Users are also empowered by the ability to hold value on their phones in a censorship and seizure-resistant manner &a;mdash; similar to bitcoin.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;&a;ldquo;If you give consumers ones and zeros that they can hold on a hard disk on their own, that&a;rsquo;s generally not regulated,&a;rdquo; said Barhydt in &l;/span&g;&l;a href=&q;; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;a November 2018 interview on Off the Chain with Anthony Pompliano&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;In Barhydt&a;rsquo;s blog post announcement from yesterday, he noted that Abra does not need to collect any personal details from those who simply deposit bitcoin into the app (rather than via a bank account).&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;In 2017, &l;/span&g;&l;a href=&q;;&g;&l;span style=&q;font-weight: 400&q;&g;Abra rolled out the next phase of their master plan&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g; by allowing their users to speculate on the price of many cryptocurrencies (in addition to the large variety fiat currencies that were already available in the app). The company&a;rsquo;s plan is to create &l;/span&g;&l;a href=&q;; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;the first global, permissionless crypto bank&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;, where functions of the legacy banking system are replaced with Bitcoin smart contracts.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Yesterday&a;rsquo;s addition of traditional stocks, commodities, and ETFs to the Abra app has continued this march towards global crypto banking, with users now having the ability to peg their bitcoin to the value of things like Apple stock or gold.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Abra&a;rsquo;s blog post announcing this new feature explained how many people may gain access to traditional markets for the first time through the app:&l;/span&g;

&l;/p&g;&l;blockquote&g;&l;span style=&q;font-weight: 400&q;&g;&a;ldquo;Many consumers in the US and other countries already have access to stocks and mutual funds via online brokerages. However, many people (billions actually) are shut out of these investment opportunities due to their geography, financial status or lack of accredited investor status, income level, or lack of trust for their local financial institutions.&a;rdquo;&l;/span&g;&l;/blockquote&g;

&l;b&g;How Can Abra Affect the Bitcoin Price?&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;Since Abra is built on Bitcoin, the app could also have huge implications for the bitcoin price. This is because the amount of bitcoin tied up in Abra&a;rsquo;s crypto collateralized contracts must be worth the value of all assets held on users&a;rsquo; phones.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Although many different use cases have been touted by cryptocurrencies over the years, the key use case that has the largest effect on the prices of these cryptocurrencies is hodling (&l;/span&g;&l;a href=&q;;&g;&l;span style=&q;font-weight: 400&q;&g;see this previous explanation on this point&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;). With Abra, all of the users effectively become bitcoin hodlers, even though they&a;rsquo;re only exposed to the price fluctuations of the specific assets held in their Abra portfolios.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;The total value of all of the assets held by Abra users through the app is effectively part of bitcoin&a;rsquo;s overall market cap.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;As a side note, there could also be implications for the Litecoin price in a situation where Bitcoin network fees spike to the levels seen in 2017. During that time, &l;/span&g;&l;a href=&q;; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;Abra tweaked their system to be able to run on top of Litecoin as well&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;. However, I confirmed with Barhydt that the system is currently only running on Bitcoin.&l;/span&g;

&l;b&g;But Will It Work?&l;/b&g;

&l;span style=&q;font-weight: 400&q;&g;It should be noted that there are some reasons to be skeptical about whether Abra will actually work in practice.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;First of all, it&a;rsquo;s unclear if various governments around the world will allow something like Abra to exist. As mentioned previously, there is no need for Abra to collect personally-identifying information about their users, which means the company is potentially a real-world version of the hypothetical Swiss bank account in everyone&a;rsquo;s pockets &l;/span&g;&l;a href=&q;; target=&q;_blank&q;&g;&l;span style=&q;font-weight: 400&q;&g;former U.S. President Barack Obama warned against at SXSW 2016&l;/span&g;&l;/a&g;&l;span style=&q;font-weight: 400&q;&g;.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;After all, drug dealers on various darknet markets may care less about turning their bitcoin or monero into physical cash if they&a;rsquo;re able to peg their profits to the U.S. dollar or other more stable assets.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Having said that, it&a;rsquo;s unclear what measures governments could take to shut down this sort of activity. Sure, Abra could be targeted, but that may just lead to the creation of a more decentralized, purely software-based version of the app where the central point of failure no longer exists.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;There&a;rsquo;s also the possibility that this idea simply crashes and burns during some of bitcoin&a;rsquo;s own market turmoil. In a situation where the price of bitcoin falls dramatically in a short period of time, there may not be enough bitcoin in the system to back all of the supposed assets held on Abra users&a;rsquo; phones. The crypto bank would effectively become insolvent.&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Barhydt talked about this issue during the aforementioned Off the Chain interview:&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;&a;ldquo;If there was some catastrophic failure of Bitcoin itself, and we hadn&a;rsquo;t, for example, migrated this to also support ether-based contracts, which we&a;rsquo;ll do eventually so you have both, we would have a problem. The contracts also assume that the price of bitcoin doesn&a;rsquo;t go to zero quickly. If it went to zero slowly, we would be able to get people out of the contracts. But if it went to zero overnight, that would be a problem.&a;rdquo;&l;/span&g;

&l;span style=&q;font-weight: 400&q;&g;Either way, it may not matter what happens with Abra. Much like Napster was for permissionless file sharing, Abra could simply be the precursor to something much more resistant to regulators in the future.&l;/span&g;

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