June 5, 2018 . 12 min read

Crypto Chat #44

Highlights

EOS:

All eyes on EOS this week as the firm behind the software production, Block.One, has finally released v1 of their open-source protocol.

Despite developing the software and coordinating the ICO, Block.One will not actually be responsible for launching the platform: instead, they will encourage a set of block producers (BP) to coordinate the launch amongst themselves. This is already proving difficult, as there will only ever be a set of 21 BPs, each who stand to make $9.7m per year at a cost of $500k. As a result, it seems likely that multiple EOS chains will be launched, which might well cause some brand confusion.

According to the Wall Street Journal, Block.One raised over $4bn in its year-long ICO: $1bn has been set aside for an ecosystem fund, while the remaining $3bn has yet to be accounted for. To put this raise size in context, there have only been two IPOs that have raised more capital in 2018 so far.

Indeed, it may be inappropriate to call the EOS raise an ICO considering that the EOS tokens have been trading on secondary markets throughout the ICO process. The length of the ICO was justified as a means of achieving a wide distribution of tokens: however, reports suggest that just 10 addresses hold 50% of all EOS tokens — for context, the top 100 Bitcoin accounts own 19% of Bitcoin’s total supply. This might just have some consequences considering EOS’ 1 token: 1 vote system.

Despite their incredulously sized treasury, the EOS roll-out has been far from smooth. Just weeks after Vitalik Buterin discovered a critical flaw in the EOS consensus mechanism, a Chinese security firm, 360, declared they had discovered “a series of epic vulnerabilities” in the EOS platform, which allowed arbitrary code to be executed remotely on EOS nodes. Dan Larimer, the Block.One CTO, assured the community that the vulnerabilities had been patched, before offering a generous $10k bounty for the discovery of unique bugs. Yes, you read that right: Larimer is offering $10k for anyone who discovers critical bugs in a platform currently valued at over $12bn — seems fair.

The blockchain community then took a closer look at the EOS constitution, which must be included in hashed form in each transaction. The constitution lists terms including: “no lying”; “no member shall offer nor accept anything of value in exchange for a vote at any time”; “no owner or fiduciary”; “no member shall own more than 10% of issued tokens”; and my personal favourite, “choice of law shall be, in order of precedence, this Constitution, the Maxims of Equity, and the laws of Malta.”

Nick Szabo, widely considered to be a major influence behind the conception of Bitcoin and smart contracts, stated that “EOS depends on a naively drafted ‘constitution’, human-interpreted wet code. As a result EOS will be labor-intensive, permissioned, jurisdictionally biased, and will have poor social scalability. That’s the ugliness of utopian drivel, not the beauty of blockchain.’ Nic Carter, the founder of CoinMetrics, was slightly less diplomatic, stating “EOS’ governance is what you’d get if you asked an alien with no knowledge of our world to design a political system, given 15 minutes with a simple-english version of the wikipedia page for the US Constitution.”

To make things even worse, hackers were able to breach the EOS email support system and succeeded in tricking the project’s investors out of millions of dollars.

For insight into EOS’ consensus mechanism, Delegated Proof of Stake, and its flaws, check out my report here.

Market

prices provided by coinmarketcap.com as of 18:00 EST

BTC:

Bitcoin (BTC) gained 5% this week, finding support at the $7,000 level before rising up the $7,400-$7,500 range. Analysts noted that Bitcoin, often considered a hedge versus the increasingly volatile global economy, gained 4% on the day that Italy’s 2-year bond yields rocketed by 900%.

For a comprehensive technical and fundamental analysis, check out Josh Olszewicz’s latest report here.

Meanwhile, the team at ZyCrypto have leveraged Eder’s bootstrapped stylometry method to determine that Gavin Andresen is the real Satoshi Nakamoto. Nevertheless, I remain in the Hal Finney 4 Satoshi camp, not that it really matters anyway.

Adam Tache and Murad Mahmudov have published a follow-up to their The Many Faces of Bitcoin article — Bitcoin: Past and Future. The piece discusses: Bitcoin as money; the roles of Full Nodes and Miners in Bitcoin and Bitcoin Cash; Satoshi’s ‘original vision’, and Segregated Witness, among other topics.

ETH:

Ether (ETH) gained X%, finding support at $509 before moving up to the $590-$600 range. The ETH/BTC ratio similarly gained X%, finding support at 0.072 before returning to the 0.078-0.080 range.

I would like to quickly provide clarification regarding my comment last week on ETH shorts at all-time highs: this should be viewed as a positive price indicator as a high ratio of shorts:longs opens up bears to a short squeeze.

For those interested in learning more about the field of cryptoeconomics, lead Ethereum researcher Karl Floersch has published the first two videos from his introductory course, which cover: hashes and signatures, and state transitions and payment processor implementations.

Meanwhile, ConsenSys has published a review of the state of the Ethereum network:

  1. Since inception, Ethereum has processed nearly 240m transactions.
  2. At its peak, the network processed 1.3m transactions in 24 hours.
  3. 35m unique addresses
  4. 17,000 nodes running the Ethereum blockchain across 6 continents
  5. Of the top 100 tokens by market cap, 94% are built on top of Ethereum — of the top 800 tokens, 87% are built on Ethereum.
  6. The Ethereum developer community is estimated to be the largest in the world with 250,000 developers.
  7. Truffle, a development framework for Ethereum, has surpassed 550,000 downloads, up from 200,000 in October 2017.
  8. MetaMask has reached over 1m users.

Government

China:

Chinese Presdient Xi Jinping publicly acknowledged the potential of blockchain technology for the first time this week.

Xi also announced that China will launch national laboratories with high standards to foster research and development of technology infrastructure.

Enterprise

Exchanges:

Bittrex, a major crypto-asset exchange for ‘alt coins’, announced that it will start allowing some customers to trade in U.S. dollars. To date, dollar/crypto pairs have largely been limited to Coinbase and Gemini.

Poloniex, a legacy crypto asset exchange acquired by Goldman Sachs-backed Circle in March, has frozen withdrawals for users who have yet to complete their new verification process. Before the acquisition, Poloniex did not require users to complete stringent Know Your Customer (KYC)/Anti-Money Laundering (AML) procedures.

Binance, the largest crypto-asset exchange by daily volume, announced that it will be launching a $1bn ‘Social Impact Fund’ in order to foster growth of blockchain and crypto-asset startups. The fund will be structured as a hybrid VC/Fund of Funds, investing in other crypto-asset funds as well as making direct investments.

Bitcoin Exchange Guide reports that 8 out of the top 10 crypto-asset exchanges since 2016 have been replaced, predominantly by Asian-based exchanges. The exchange comparison also indicates that daily trading volume has increased by 120x over a 2-year period.

Huobi, a major crypto asset exchange originally launched in China, is setting up shop in Brazil, while Coinbase announced today that it will be opening offices in Japan.

BitGo/Kingdom Trust:

BitGo, a leading Bitcoin wallet provider, has announced that it will not be moving ahead with the acquisition of Kingdom Trust, a leading crypto-asset custody solution. Instead, the startup plans to build its own regulated custody solution, BitGo Trust.

Sequoia:

Matt Huang is leaving his Partner position at Sequoia Capital to launch a crypto-asset fund with the co-founder of Coinbase, Fred Ehrsam.

Sequoia will reportedly be making a substantial investment in the fund.

Use cases

TokenSet:

Set Protocol has launched TokenSets on the Ethereum mainnet.

TokenSets currently offers three sets: EthereumX, the top 10 ERC20 tokens weighted by market cap; StableSet, which is evenly distributed across DAI and TrueUSD, and DEXSet, which contains the major decentralized exchange protocol tokens weighted by market cap. Sets can currently be traded on RadarRelay.

This is one of my favourite dApps to date: the interface is stellar, the concept is fantastic, and the scope of potential sets is enormous, especially when tokenized securities begin to materialize. For example, imagine owning a Cubism set, which contains 10 non-fungible tokens that each represent a fraction of ownership in various Cubist artists.

CryptoCup:

CryptoCup is an Ethereum-based game that allows users to create World Cup brackets in the form of ERC721 non-fungible tokens.

he prize pool currently sits at 27 ETH, valued at ~$16k.

Toshi:

Toshi, a mobile browser for the Ethereum network brought to you by Coinbase, is moving into the desktop space — this week they provided a sneak preview of their Chrome wallet/Web 3 extension, which seems to be a direct competitor to ConsenSys’ widely popular MetaMask.

The extension uses the newly acquired Cipher’s engine and will be fully open source on public release.

Layer 2:

Neha Narula, Director of the Digital Currency Initiative at MIT Media Lab, has published a treatise on the importance of Layer 2 (L2) scaling, off-chain solutions that rely on the root chain for dispute resolution. Vlad Zamfir, a lead Ethereum researcher, is keen to remind us that L2 solutions free-ride and reduce the economic security of root chains.

Meanwhile, Celer Network debuted its full-stack state channel solution MVP. Check out the demo video here.

Zooko/Jihan:

A fascinating conversation between Zooko Wilcox, the founder of Zcash, and Jihan Wu, the founder of Bitmain, the largest crypto asset mining service and mining rig producer in the world.

Key highlights:

  1. Zooko believes that Jihan’s answers are sincere because he looked into his eyes for five minutes in Argentina several years ago.
  2. Jihan is open to Zooko’s suggestions that Bitmain extend an olive branch to the West and increase the company’s transparency.
  3. Bitmain has developed ASICs for Zcash.
  4. Jihan owns around 25-28% of BItmain — his co-founder, Micree, owns more than he does.
  5. Jihan and Micree’s shares each have 10x voting power over other Bitmain shares.
  6. Bitmain is currently valued at $10bn and saw $2.5bn revenue in 2017.

Ethereum Gas:

Brendan Bernstein of Tetras Capital posits that Ethereum’s current gas usage is unsustainable and puts the smart-contract platform in a position to be overtaken by its peers.

Niel de la Rouviere, Chief Catalyst at StakeTree, finds Bernstein’s argument unconvincing. Some of his key points below:

  1. There are many ways to solve the gas costs/fees problem.
  2. Using Dappradar as an indicator for Ethereum ecosystem activity is misleading as it doesn’t take into account smart contracts.
  3. The value of an ecosystem is not always measured in how ‘active’ a smart contract/dApp is — you don’t necessarily have to interact with an asset every day for it to have value.
  4. Commodification of smart contracting is not as simple as people seem to think — “There's so many other intangible parts of blockchains, like culture, community, developer experience, people, diversity, inclusion, vision and more, that appeals to people.”

Rick Dudley:

Rick Dudley, a consensus mechanism designer, appeared on the Hashing it Out podcast this week, where he discusses Byzantine Fault Tolerant systems and decentralized storage networks.

Disclosure — I have yet to find the time to listen to the podcast but I am familiar with Rick’s work and imagine it will be a valuable learning experience.

Voting:

The Brooking Institute looks at Votem, a mobile-based blockchain-based voting platform, and the advantages that it could lend regarding voter turnout and election transparency.

Disclosure — I was an investor in Votem’s pre-sale.

EthDetective:

EthDetective is a new tool for tracking transactions on the Ethereum blockchain. Simply enter a wallet address and you will be provided with a smooth visual representation of the account contents and its historical transaction partners.

CryptoKitties:

CryptoKitties, everyone’s favourite Ethereum-doesn’t-scale example, is being sued for trade secret theft over their Stephen Curry digital collectible.

ICOs

May:

TokenData reports that a total of $1.97bn was raised through ICOs in the month of May. Half of this came from the EOS ICO, which has now concluded.

The figures are close to double that of April, which saw $1.14bn raised, and on par with March.

Some reports note that a lot of activity has come from South Korea, with private sales for Orbs, Flashmony, and Videocoin raising $118m, $72m, and $50m respectively.

Boston College:

Two professors from Boston College have published a paper analyzing returns offered to investors from ICOs.

Hugo Benedetti and Leonard Kostovetsky analyzed data from over 4,000 offerings and discovered that tokens are severely underpriced at the ICO stage and ICOs average returns of 179% from the ICO price to the first day’s opening market price.

Envion:

The New York Times reports on a Swiss project, Envion, which raised $100m in an ICO last year and now has the co-founders accusing each other of fraud.

Nathaniel Popper frames Envion as a ‘good project gone bad’, even though there is myriad evidence to suggest that Envion was always of dubious quality — the company sold investors on the idea of developing mobile Bitcoin rigs, a concept that seems technically infeasible to anybody familiar with Bitcoin’s extensive mining specifications.

Titanium:

The SEC obtained a court order halting an ongoing fraud involving an ICO that raised $21m from investors in and outside the U.S.

The SEC complaint charges Titanium President Michael Alan Stollery with lying about business relationship with the Federal Reserve and dozens of well-known firms, including Paypal and Verizon.

Kik:

Just months after raising $100m in an ICO, the Kin founder, Ted Livingston, has expressed his doubts over blockchain technology’s potential.

Reseources

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