August 28, 2018 . 12 min read

Crypto Chat #53


Proof of Stake Over Time:

Vitalik details the history and state of Ethereum’s Casper research, touching on the great FFG vs. CBC debate, the transition from hybrid to full Proof of Stake implementation, and the role of randomness.

Confused as to where we stand today?

“On the FFG side, formal proofs, refinements to the specification, and ongoing progress on implementation (already started by >=3 teams!), with an eye to safe and speedy deployment. On the CBC side, much of the same.”

Lightning 2.0:

Abacus’ Daniel Goldman explores the next wave of Lightning Network (LN) innovations, and the obstacles they seek to overcome.

In particular, Goldman addresses the three broad categories of LN criticisms to date: 1) problems with liquidity between channels 2) difficulty obtaining the state of available routes 3) issues associated with the necessity of live nodes.

Required reading for anyone interested in scaling Bitcoin.

Most Read From CC#52:

1. Consensus Encyclopedia

2. Industries Disrupted by Blockchain Technology

3. Casper vs. Ouroboros

4. Overview of Privacy Related Applications

5. Crypto Markets Are Wrong


prices provided by as of 17:50 ET


After a rather tumultuous start to August, Bitcoin (BTC) has now seen two consecutive weeks of growth. However, don’t start banking on a quick recovery just yet.

In a positive sign for bulls, the market shrugged off nine more ETF rejections last week. As it happens, the SEC announced that the decisions would be reviewed by several commissioners, although it remains unlikely that any of the proposals will be approved. Stay up to date with impending BTC ETF decisions here.

As discussed several weeks ago, the approval of an ETF would be terrible news for the Genesis BTC index ($GBTC), which often trades at a 50% premium to NAV. While $GBTC competition has struggled to gain traction in recent weeks, its position, and premium, is now severely under threat from Bitcoin Tracker One (CXBTF), an exchange-traded note (ETN) that has been listed on Nasdaq Stockholm since 2015 and can now be traded in U.S. brokerage accounts.

ETF approval is just one of many competing narratives likely to drive the next crypto asset bull run: for a cogent summary of all the others, check out Nathaniel Whittemore’s Crypto Narrative Index here.


Ether (ETH) continues to struggle vs. USD, ranging aimlessly between $270-$280 with no sign of bullish reversal in sight. Leading Ethereum venture studio, ConsenSys, took the opportunity to address several misconceptions in the ETH market, which reads rather similarly to my rebuttal of the Tetras Capital short thesis.

A deeper dive into the state of the ecosystem reveals a healthy rate of development and user traction. Trustnodes reports that just 30% of ETH movements are related to trading in and out of exchanges, while the narrative of ICO projects biting the hand that fed them continues to be debunked by empirical evidence.

Instead, disappointing price activity may possibly be explained by a combination of a strong dollar and a high rate of inflation used to incentivize miner activity: annual ETH inflation currently sits at 7.2%, about two times that of Bitcoin, and provides miners with large amounts of ETH that are then market sold to cover costs.

To that end, the Ethereum community has started conversations around issuance reduction. Eric Conner is leading the battle for a EIP-1234, a proposal to reduce block rewards from 3 ETH to 2 ETH until the implementation of Casper. A summary of Friday’s Core Dev Call can be found here. For the record, I support Eric's proposal.

Perhaps the most interesting part of this debate is the way it implicitly stress tests Ethereum’s governance process: monetary policy is delicate and, due to the range of different actors and incentivizes involved, any decision is likely to be controversial. Who should have final say in a decentralized network, and, before that decision is made, how can we meaningfully gauge community sentiment? To be continued.


Voting =/= Governance:

Decentraland’s Tony Sheng is back with another important piece, this time addressing the limited part that voting has to play in governance systems.

“Governance is not a feature, it is a complex system. Voting is just one (optional) part of that system and does not itself lead to strictly better governance (though it can). A project can have strong governance without voting and a project with voting can have terrible governance. We should be wary of projects that claim decentralized governance solely based on their voting feature and instead seek to understand all sources of influence across the decision-making process.”

On the topic of voting in decentralized systems, a disgruntled DASH investor proposed a referendum to demote CEO Ryan Taylor on the basis that key deadlines had been missed to the detriment of the coin’s price performance.

It seems unlikely that the proposal will pass, with just 1 day left before the motion is removed. Assuming that Taylor is responsible for the apparent lack of development progress, might we consider DASH’s governance system inherently flawed?

Puerto Rico:

The Guardian has published a mini documentary on the attempts of blockchain evangelists, led by a man that looks both 13 and 45 at the same time, to build a ‘crypto utopia’ in Puerto Rico.

While the intentions of these crypto colonialists are ostensibly altruistic, this heavy-handed assertion that blockchain technology will provide a path to socio-economic recovery in the wake of a devastating hurricane seems slightly tone deaf and misguided. Furthermore, it is hard to look past the tax incentives that have likely drawn these capital gain heavy adventurers to the island: indeed, the one lesson we should all have learnt from studying this industry is that incentives are everything.

Talking of tone deaf: crypto investor and interviewee Kai Nygard on the state of crypto utopia:

“The reason that people are moving down to a way it’s the perfect storm that happened — no pun intended with the storm that just happened.”



A couple updates on Bitmain after I reported two weeks ago that the upcoming IPO might be justifiably interpreted as a strategy to exit their destructive Bitcoin Cash position.

First, a translated version of their investor deck.

Second, ARKInvest’s Brett Winton notes that Bitmain’s intention to invest less than 1% of their sales in R&D, equating to $50m in 2018, pales in comparison to the $2bn committed by nVidia towards AI chip research. This is especially relevant as Bitmain continues to suggest that income from AI related activities will likely overtake that from crypto asset mining.

Finally, investment giants Tencent Holdings and SoftBank group have both denied involvement in Bitmain’s pre-IPO investment round after initial reports from TechCrunch and CoinDesk noted that they had participated in the funding effort.


Enterprise blockchain startup Axoni has raised a $32m Series B from investors including Goldman Sachs, Y Combinator, and Andreesen Horowitz.

Axoni’s core product is designed to be interoperable with the public Ethereum blockchain.


Two updates from Coinbase.

First, the Coinbase wallet/browser, Toshi, has been rebranded to Coinbase Wallet.

Second, another acquisition in the form of Distributed Systems, whose team will continue working on human friendly decentralized identities and permissioned tokens.


Silicon Valley-based crypto asset trading platform, Sfox, has raised a $23m round led by Tribe Capital and Social Capital.

The startup aims to address the fragmented liquidity of crypto asset markets, routing large trade orders to multiple venues in order to achieve faster execution and minimal slippage.


Leading crypto asset investment group Pantera Capital has launched its third crypto fund, with over $71m of the targeted $175m already committed.

While the investment firm’s 10,000% returns over the past five years may seem impressive, it is worth noting that a long-only BTC portfolio from 2013 would have returned similar multiples.

On the topic of fund strategies, check out the Mining 2.0 thesis from Notation Capital, which details their transition to active involvement in mining, thereby generating returns through protocol rewards while simultaneously contributing valuable resources to their portfolio networks.

I expect to see this kind of mining-as-a-service fund strategy receive more attention in the near future as projects seek out strategic investors in a landscape of abundant capital and investors search for ways to get a fixed-income type return on their otherwise speculative investments.

Use Cases

40 dApps:

A ConsenSys-compiled list of 40 Ethereum-based applications you can use right now, including: uPort, Brave, ENS, Golem, Ujo, and MakerDAO.

Bonus: Crypto Periodic Table.


Speaking of MakerDAO:

It is becoming increasingly clear that the decentralized collateralized stable-coin network is one of the most significant Ethereum-related innovations to date. For all the talk of Ethereum as a desert for daily active users, it is worth remembering that almost 0.5% of total ETH supply, currently valued at $140m, is locked up as collateral in MakerDAO contracts

One criticism of the Maker design is that by relying on ETH as collateral the size of DAI supply will forever be limited to the size of the underlying ETH market, and thus struggle to fulfill its promise as a global alternative to fiat currencies. Enter multi-collateral DAI contracts, which will be deployed to testnet on September 17th, allowing users to post assets other than ETH in their collateralized debt positions.

In addition, MakerDAO has announced a partnership with Wyre, a blockchain money transfer company, which will allow organizations to compliantly move fiat currency directly into and out of DAI, removing exposure to the unpredictability of underlying collateral while benefiting from the transparency and security of the Ethereum blockchain.

Bonus: a visualization of MakerDAO CDP liquidations for the bear month of August totalling 36,000 ETH in collateral. Two things to be taken from this: 1) despite volatility of the underlying, DAI remained remarkably stable throughout this period 2) it is worth thinking of average CDP liquidation price as a prediction market of sorts for ETH lows.


An update from the community’s favourite ponzi-scheme, FOMO3D, which has confounded game theorists by actually finishing: the winner received just under 10.5k ETH, valued at over $3m, while the remaining 12.5k ETH was distributed to members of the winner's selected team.

Token Economy analysis posits that 29% of participants saw a positive return on investment, including one user who saw 8.2x return. On the other end of the spectrum, one user lost 1k ETH, having purchased 1.2m keys and only receiving 2k ETH in dividends.

How did the game that was never supposed to end end? An enterprising user simply exploited the strategy employed by various bots, stuffing blocks with a small number of abnormally high transaction fees while simultaneously tricking bots into submitting low fee transactions by controlling the weighted average gas price across the block.

On to the next one!



A visualization of ICO returns by vintage.

The difference between ETH performance of 59230% vs. smart contracts like Cardano (3714%) and Tezos (147%) should not be ignored: these phenomenal returns have heavily contributed to the development of a dedicated community of Ethereum ecosystem evangelists, and this same dynamic will be difficult to replicate among ‘Blockchain 3.0’ competitors when even early adopters enter at multi billion dollar valuations.


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