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The week in fintech: Crypto continues to gain momentum even as prices fluctuate

This recap features updates on bank technology, payments, online lending and other news in the U.S. financial technology space. Send tips, ideas and chatter to rachel.stone@spglobal.com. For other recent fintech news, click here.

Bitcoin's sharp fall from record prices did not stunt the growth of the rest of the cryptocurrency industry.

Initial coin offerings skyrocketed in 2017, and data from Autonomous Research shows that 2018 is off to an even stronger start. Total ICO funding in 2017 was $5.4 billion; according to Autonomous, funding in January 2018 alone hit $1.5 billion.

Autonomous analyst Lex Sokolin called it the "advent of the decentralized system," noting that the crypto economy continues to gather momentum, even with the large declines most major tokens saw at the beginning of the year. The Bitcoin network is also attempting a solution that might boost the token's price.

Currently, as more people are added to the Bitcoin system, the system gets worse, Sokolin said in an interview. Everybody shares the database where data is stored, making a systemwide update very challenging. But the lightning network has emerged as a possible solution to these significant scaling issues.

This network essentially creates personal tunnels directly between users that act as side connections that are not directly taking up space on the blockchain, Sokolin explained. As such, it would enable more transactions to be completed without slowing the whole network down. But this is not an easy problem to fix.

"People have been building this for several years," Sokolin said. "I think it's going to be clunky for a long time."

Implementing the network, which is currently in process, is just step one. It then has to be tested with millions of people, Sokolin said, adding that it will likely be attacked hundreds and hundreds of times and will have to survive those negative actors.

The technology behind lightning network is also being developed by other cryptocurrency networks, including Litecoin, Ethereum and Ripple. Sokolin said some users are testing the lightning technology now, but he does not know when it will be formally launched by any of the cryptocurrency networks.

Bitcoin rebounded some this week, climbing back above $10,000. It stood at $10,084.36 as of 12 p.m. ET on Feb. 16.

In a blog post this week, Coinbase said it launched Coinbase Commerce, which enables merchants to accept bitcoin, bitcoin cash, Ethereum's ether and litecoin payments. Similar to how PayPal Holdings Inc.'s network functions, Coinbase has built a platform where no-fee transactions can instantly settle on Coinbase's internal ledger, Credit Suisse analyst Paul Condra said in a Feb. 16 note. This means that regular merchants have a low-friction way to add cryptocurrency payments on their platforms.

"To the extent payments occur within this network, the high mining fees and long settlement times associated with crypto transactions (mainly Bitcoin) are effectively mitigated," he said. Although the crypto industry is likely to grow and will continue to enable new kinds of payment services, Condra currently sees little risk for incumbent payment service providers like Visa Inc. and Mastercard Inc.

Ripple signed a blockchain deal with Saudi Arabia's central banks this week, Reuters reported. The pilot program, which is the first of its kind to be launched by a central bank, will allow banks in Saudi Arabia to settle payments sent into and out of the country using Ripple's blockchain software.

Also this week, Houston-based Crypto Coins US grew its assets to more than $100 million, Houston Business Journal reported. Matt Russell, president of the cryptocurrency investment firm, reportedly said its asset base has "exploded" in the last two months.

On Deck Capital Inc. reported profitable fourth-quarter 2017 earnings this week. Earnings continues next week with fellow digital lenders LendingClub Corp. and LendingTree Inc. scheduled to report.

From Feb. 9 to Feb. 15, the SNL U.S. Financial Technology Index jumped 5.29%.

A recent report from S&P Global Market Intelligence explores how banks and insurers are embracing fintech innovation. The report looks at recent trends and provides outlooks for the insurtech, digital lending, digital investment management, digital banking, payments and distributed ledger technology sectors. Click here to read the report.