As the cryptocurrency markets enter the weekend, many investors are expecting Bitcoin (BTC) to see increased levels of volatility, as it has made some relatively large price swings over the past few weekends.Although this volatility has been negative thus far, one cryptocurrency analyst now expects Bitcoin to possibly see a large upwards price swing in the next couple of days as long as it is able to finish the weekend above $3,480.Bitcoin (BTC) Typically Sees Increased Volatility During WeekendsAt the time of writing, Bitcoin is trading down marginally at its current price of $3,475. BTC has been stable in the upper-$3,400 region for the past several days after breaking below its previously established support level around $3,550.Bitcoin’s typical weekend volatility around its current price levels first began on Saturday, January 19th, when BTC jumped to $3,750 from $3,650, before dropping back to $3,550. This drop established $3,550 as a level of relative support for the next week, until it finally broke below this price level on Sunday, January 27th, when it fell to lows of $3,400.Although $3,400 has held as a level of support for the past several days, many analysts have previously speculated that Bitcoin will not see any major buying support until it revisits its 2018 lows that are set at around $3,200.Bitcoin has experienced increased levels of volatility over the past several weekends.Analyst Claims Bitcoin Could Surge in Coming DaysIn a recent tweet from Mitoshi Kaku, a popular cryptocurrency analyst on Twitter, he explained that Bitcoin may see a bullish price move in the next couple of days based on data from the Gann Price Cycle.“Just finished a deeper $BTC analysis. I decided to move my longs around $3370 and a bullish break out around Feb 3/4. (Gann Time Cycle) – It is time things turns around!”Just finished a deeper $BTC analysis. I decided to move my longs around $3370 and a bullish break out around Feb 3/4. (Gann Time Cycle) – It is time things turns around! 🐂 pic.twitter.com/7H55PxYtRG— Mitoshi Kaku 👨🏻🚀 (@CryptoSays) February 1, 2019He later noted that he would like to see BTC’s price climb above $3,480 in order for the aforementioned bullish price move to remain in play, but also said that he is looking to enter new long positions around $3,280 if BTC drops further.“Closed my longs partially here, for the rest I would love something around 3480 // Weekend getaway is here so I’ll probably fill lower longs in the next few days, looking at 3280. Long SL Order set too if the price breaks the HTF Resistance,” he explained.Closed my longs partially here, for the rest I would love something around 3480 // Weekend getaway is here so I’ll probably fill lower longs in the next few days, looking at 3280. Long SL Order set too if the price breaks the HTF Resistance. $BTC pic.twitter.com/3DlWK2cGfM— Mitoshi Kaku 👨🏻🚀 (@CryptoSays) February 2, 2019How BTC trades over this weekend will likely set the tone for the coming week, but it is highly likely that a break below its support level around $3,400 will lead it to revisit its 2018 lows.Featured images from Shutterstock.
Archives for February 2, 2019
Joe Rogan may have landed his biggest guest yet on his popular podcast, the Joe Rogan Experience: Jack Dorsey, the founder and CEO of Twitter and Square and an avowed Bitcoin bull.
Joe Rogan Experience #1236 – Jack Dorsey
In a wide-ranging two hour interview published Saturday, Jack addressed a number of topics, including questions about Twitter censorship, doxxing, “SmirkGate,” Donald Trump, Alex Jones, the nature of tech giants, the future of the Internet, and Bitcoin.
Here’s what Jack had to say:
About Bitcoin Maximalism
“I believe the Internet will have a native currency and I don’t know if it’s Bitcoin. I think it will be [Bitcoin] given all the tests it has been through and the principles behind it, how it was created. It was something that was born on the Internet, was developed on the Internet, was tested on the Internet, [and] it is of the Internet.”
About Integrating Bitcoin on Square’s Cash App
“The reason we enabled the purchasing of bitcoin within the Cash App is we wanted to learn about the technology and we wanted to put ourselves out there and take some risks.”
“We’re the first publicly traded company to actually offer it as a service. We’re the first publicly traded company to talk to the SEC about Bitcoin and what that means, and it made us uncomfortable. We had to really understand what was going on. And that was critical and important.”
“We would love to see something become a global currency. It enables more access. It allows us to serve more people. It allows us to move much faster around the world. We thought we were going to start with how you can use it transactionally, but we noticed that people were treating it more like an asset, like a virtual gold, and we wanted to just make that easy, just the simplest way to buy and sell bitcoin.”
About Risky Bitcoin Speculation and Day Trading
“It had to come with constraint, because you know, three years ago, people did some really unhealthy things about purchasing bitcoin. They maxed out their credit cards and put all their life savings into bitcoin.”
“So we developed some very simple restrictions and constraints, like you can’t buy bitcoin on the Cash App with a credit card. It has to be the money you actually have in it. And we look for day trading which we discourage and shut down. That’s not what we’re trying to build. that’s not what we’re trying to optimize for.”
A Children’s Book About Bitcoin
“We even made a children’s book explaining what Bitcoin is and where it came from and how people use it and where it might be going.”
About Institutional Banking and Bitcoin
“Look at some of the major banks and their consideration around bitcoin… There’s no centralized control over it. And I think that’s threatening.”
“It’s certainly threatening to certain services behind banks and financial institutions. It’s threatening to some governments as well. So I just look at this like how can we embrace this technology and not react to it more from a threat standpoint?”
About Technological and Commercial Disruption
“What does it enable us to do and where does our value shift? And that’s what we should be talking about right now: how our value shifts. And there is always really strong answers to that question, but if you’re not willing to ask that question in the first place you will become irrelevant, because technology will continue to march on and make you irrelevant.”
“And it’s the people that are growing up with this technology, are born with that technology, only knowing that technology, or they’re asking the tough questions of themselves that are going to be super relevant to their business. And they’re thinking about it right now, and they’re taking actions.”
Joe Rogan Experience #844 – Andreas Antonopoulos
Joe Rogan, a mixed martial arts commentator and standup comedian, is also a big proponent of Bitcoin as a global currency and has addressed cryptocurrency on several podcasts, including having notable cryptocurrency author and speaker, Andreas Antonopoulos on the podcast a number of times.
(Here’s the most recent, from two years ago, so they’re about due for another chat.)
Jack Dorsey Image from Joe Rogan Experience/YouTube
Contrary to cynical sentiment touted by skeptics of Bitcoin, crypto isn’t dead in the water. As Mike Novogratz, the founder of leading crypto-centric merchant bank Galaxy Digital, “[there’s] tons of activity under the hood.” Over the past week, VanEck & its fellow hopefuls refiled their Bitcoin exchange-traded fund (ETF) application, while Binance and Fidelity made notable announcements that could eventually drive the adoption of blockchain technologies. Yet, there have been a few shortcomings too.Crypto TidbitsVanEck, CBOE, SolidX Refile Bitcoin ETF Application: On Thursday, reports arose that VanEck, CBOE, and SolidX Partners refiled their collaborative Bitcoin ETF application to the U.S. Securities and Exchange Commission (SEC), which reopened following a near-five-week government shutdown. It is assumed that the newfound stability of the U.S. government reassured VanEck that its Bitcoin investment vehicle proposal could see approval, catalyzing the document’s resubmission. The proposed investment instrument is still centered around providing Wall Street investors, high net-worth individuals, and notable crypto funds, with a proper, secure, and regulated way to gain exposure to physical, not futures-based Bitcoin. From this point, the SEC purportedly has 240 days to make a final decision on the Bitcoin-centric product.Binance Launches Debit & Credit Purchase Feature: It may be a mere four weeks into 2019, but Binance has already begun to flex its muscles and bare its fangs. On Thursday, the Malta-headquartered company took to Twitter in tandem with Simplex, a crypto-friendly fiat payment servicer, to reveal that its world-renowned trading platform would be accepting credit card and debit card payments. Through a company release pertaining to the matter, chief executive Changpeng “CZ” Zhao, a golden child in the crypto industry, explained that this Simplex integration is intended to aid Binance’s traders, as it will provide them “fast and easy access to crypto, in the most secure way possible.” Through this integration, Binance clients will be able to use their Visa and Mastercard debit & credit cards to buy Bitcoin, Ethereum, XRP, and Litecoin. Simplex purchases will cost the user 3.5% on each transaction, but a flat rate of $10 will be imposed if the transaction doesn’t surpass $285 (or an equivalent amount in another currency).Blockchain.com Loses Wall Street Talent: Blockchain.com, a San Francisco-headquartered crypto upstart that has historically been centered around consumers, was revealed to have lost Jamie Selway, a veteran of Wall Street turned the head of global institutional markets at the firm. Per a report from The Block, Blockchain, which sports offices in financial capitals New York and London, has begun to shift its institutional business strategy. In a company statement, Blockchain did acknowledge Selway’s value to the company, but then noted that “that segment” has slowed as the “needs of professional [crypto] investors have grown over the last year. And as such, the company determined that it was best if it handed over the institutional reins to more crypto-centric businesspeople, who would be more fit appealing to “crypto-native” firms, funds, and investors.Kik To Challenge SEC Over Regulatory Status of ICOs: According to a statement from Ted Livingston of Kik, the world-renowned social media company, the company intends to fight proposed enforcement action over the KIN ICO, which raised $100 million and wasn’t registered with the SEC. While cynics would claim that Livingston & crew don’t have a leg to stand on, Kik believes that its rebuttal, which is to be filed in civil courts, is valid and could set a precedent for this nascent ecosystem. In fact, Kik’s lawyers even called the financial regulator’s approach to cryptocurrencies “flawed.”Bloomberg Reveals Fidelity May Launch Crypto Custody By March: The Wall Street herd may just be around the corner. According to an exclusive from Bloomberg, which later seemingly corroborated by Fidelity itself, the Boston-headquartered finance giant’s crypto subsidiary, Digital Asset Services, will be launching its flagship Bitcoin custody product by March. The Bloomberg report, which cited three familiar with Fidelity’s operations, claimed that the company has begun to onboard a select set of “eligible clients” for its cryptocurrency custodial program. Mike Novogratz, the aforementioned Galaxy Digital head who once was an institutional hotshot, once claimed that an offering like Fidelity’s regulated, secure, and trusted crypto custody could catalyze a wave of interest from Wall Street’s largest entities.Crypto Exchange Liqui Exchange Folds, Cites Lack Of Liquidity: Liqui, a Ukranian crypto exchange launched in 2016, revealed that it would be shuttering its operations early last week. Per a company release that replaced the company’s homepage, Liqui determined, (ironically enough), that it would be “unable” to provide liquidity for its remaining clients. As such, the startup’s top brass deemed that it wouldn’t be economically feasible nor logical to offer its trading platform, thus catalyzing the release of the message. From January 28th, traders have thirty days to withdraw their cryptocurrency holdings from the site. In a response to this harrowing industry occurrence, Ran NeuNer, the showrunner at CNBC Africa’s “Crypto Trader,” noted that as exchanges “require infrastructure that is expensive to maintain,” more trading mediums could bite the dust in the coming weeks/months.Featured Image from Shutterstock
Dan Morehead, the CEO of bitcoin investment firm Pantera Capital, says everyone needs to chill out about the current Crypto Winter.
Morehead reminded the myopic industry that the crypto space had weathered similar bear markets before, and this one actually bodes well for the future of bitcoin and blockchain.
‘Underlying Fundamentals Are Much Stronger’
“This is actually our second Crypto Winter,” Morehead said on Laura Shin’s podcast Unconfirmed (audio below).
“There was one in 2014 to 2015. In the previous one, I had more of a worry in the pit of my stomach about whether blockchain was actually going to work. There were real regulatory risks.”
“With this one, the underlying fundamentals are much, much stronger than they were in the 2014-2015 Crypto Winter.”
Morehead says Pantera Capital makes investment decisions based on a five-to-10-year outlook, so its strategies are not affected by “distracting” daily bitcoin price fluctuations.
“We are always trying to think [ahead] five to 10 years in our investing and looking at the positions that would do well over a long period of time,” Morehead explained. “We’re not trying to get wrapped up in the cycles of the price action.”
Trust & Believe: Institutional Investors Will Come
While the financial media and impatient investors with day-trading mentalities wring their hands over hourly crypto prices changes, Morehead is not sweating the current downturn.
He believes that institutional investments will eventually come. However, he conceded that the current price slump is deterring them from pulling the trigger.
“People have been talking for years about the impending institutional wave of money coming into the crypto market,” Morehead recounted. “I think we now have the required conditions for that to happen.”
“Institutional investors really want to have a custodian that is well-known and regulated. We really haven’t had that in the past.”
Morehead says it will take big-name, institutional-grade custodians to lure institutional money into the market. However, he noted that this is already happening, with ICE’s Bakkt and Fidelity making big moves into the space.
Institutions Will Invest When the Bitcoin Price Rises
Because institutional investors are risk-averse in their investment approach, Morehead says they won’t start betting on bitcoin until its price rises. He pointed out that this goes against the oft-cited strategy to “buy low and sell high.”
But because global institutions have a herd mentality and need external cues that an asset is worth investing in, we shouldn’t expect big money to pour in until cryptocurrency prices start escalating.
“The big wave of institutional money will probably not start until prices start going up. We saw that in the two previous cycles.”
“Crypto markets are even more extreme than the normal markets. The inflows into our bitcoin fund have been massively pro-cyclical.”
“We launched the fund when bitcoin was at $65. Very few investors came into until the price got to $400 or $500. And then, when the price rose to $1,000 in 2013, we had massive inflows. And when the Crypto Winter hit in 2014-2015, it really dried up.”
Because we’re in the midst of a prolonged bear market, Morehead says it’s understandable that many investors are “sitting on the sidelines,” waiting for conditions to improve.
Expects SEC Regulatory Clarity In 6-9 Months
When asked how regulatory uncertainty affects the industry, Dan Morehead noted that the IRS and the CFTC have already issued statements. The major holdout right now is the Securities and Exchange Commission.
“The SEC is in the middle of figuring out what standards to set on what things should be securities and what won’t be,” he says. “In the next six to nine months that will be sorted out. Once it’s clear, it’ll be easier for exchanges and investors to know how to handle these types of assets. I think in the next 9 months, that will be sorted out.”
Meanwhile, here’s an interview Morehead did last week about the changing investment landscape.
Featured Image from Shutterstock
In the past 30 days, the valuation of the crypto market dropped from $138 billion to $114 billion by $24 billion. Yet, TRON (TRX) recovered from $0.0127 to $0.0264, by well over 107 percent.
Since December 17, in about five weeks, the Tron price demonstrated a strong gain against both Bitcoin and the U.S. dollar following a series of positive announcements.
Most recently, BitTorrent Token, the native cryptocurrency of the BitTorrent ecosystem, initiated a token sale on Binance Launchpad and all of the tokens sold out within minutes.
Could BitTorrent Pave the Path Towards the Success of TRON
On January 28, as CCN reported, Binance Launchpad and TRX completed the token sale of BitTorrent token within 15 minutes.
BitTorrent Token was sold to Binance Coin and TRX holders, with 23.76 billion BTT distributed to BNB holders and 35.64 billion BTT distributed to TRX holders.
Both sales were concluded within 15 minutes. But, the sale could have been completed within seconds had technical issues not emerged on Binance Launchpad.
Find a solid project (10 year product, 100m users), advise them to keep the initial sale price low (overwhelming demand), then list (price goes up). Some say “manipulation” (what?!?) Some say “thank you!”. Welcome to the world of freedom!
— CZ Binance (@cz_binance) January 31, 2019
Changpeng Zhao, the CEO of Binance, said that the demand for BTT was so high that it overloaded the system even with extended preparation.
Damn, no matter how much you prepare, still have bottleneck issues. Even the caching of caching was over loaded. Still under estimated demand. Sorry for the overloaded experience. And thank you for your support! Some issues will fix for the next one. Due to overwhelming demands, Tron team generously agreed to do a small airdrop for people who tried to place orders, but was not successful in buying.
Following the successful campaign of BTT, TRON CEO Justin Sun said that due to the fixed supply of BTT and the one billion devices in the BitTorrent ecosystem, there’s only about 990 BTT per user.
— Justin Sun (@justinsuntron) February 2, 2019
Based on the demand for BTT, investors remain positive that the next phase of TRON’s growth and development could be fueled by BitTorrent Token.
While smart contract protocols like Ethereum, EOS, and TRX have hundreds of decentralized applications (DApps) with thousands of active users on average, no blockchain protocol to date has a platform with millions of users.
But, whether many BitTorrent users will use BTT remains in question.
A cryptocurrency researcher with an online alias “Zissou” suggested that BTT could complicate the process of accessing the BitTorrent protocol. As such, it may be difficult to convince or incentive users to utilize BTT.
Often, users download torrent files via magnet links or torrent files. For casual users, creating an account on an exchange, purchasing BTT, reading a tutorial on methods to use it, and transferring BTT to a BitTorrent client could be difficult.
I can click a free magnet link
1. Buy BTC
2. Register Binance account
4. Transfer $BTC to Binance
5. Wait for confirmations
6. Purchase $BTT tokens
7. Read a $BTT tutorial
8. Transfer $BTT to Bittorrent client and pay for saving time on my download#GG $BTT
— Zissou™ (@ZeusZissou) February 1, 2019
What TRX Growth May Look Like
As recent reports have revealed, TRX has allocated more resources than many other blockchain protocols in accelerating its DApp ecosystem.
A Dapp.com report disclosed that TRON is the most ambitious project by far with more than $2 billion pledged to support its DApp ecosystem.
“TRON is the most ambitious in the dapp field, with a $2 billion Project Genesis launched in the second half of the year. In addition, it spends $100 million on TronArcade to promote its dapp ecosystem,” the report read.
According to the official blockchain explorer of TRX, the transaction volume of the blockchain network increased from less than 130,000 transactions to over 2 million transactions in a span of four months.
Due to the high user activity in the BitTorrent ecosystem, it is still uncertain how TRX and the blockchain network will handle millions of requests on a regular basis.
The development team behind the project has prioritized scalability since the launch of its mainnet in mid-2018 and the scalability-focused open-source developer community of TRX could allow it to eventually achieve a transaction capacity to handle large-scale applications.
Noelle Acheson is a veteran of company analysis and member of CoinDesk’s product team.
The following article originally appeared in Institutional Crypto by CoinDesk, a newsletter for the institutional market, with news and views on crypto infrastructure delivered every Tuesday. Sign up here.
We need to get serious about vocabulary.
The crypto sector has earned a well-deserved reputation for obfuscating with confusing jargon, and the use of certain terms for hype purposes has not helped (how many “blockchains” have chains of blocks?). Even the term “crypto,” too, is confusing, implying cryptography which is about secrets… for public, transparent protocols.
You’ll have also noticed a proliferation of the term “security token.”
Platforms are gearing up, issuers are doing their thing and regulators are paying attention. Last week, I attended a packed event in London titled “Security Tokens Realised,” in which speakers used the phrase to refer to a wide range of blockchain-based assets.
The event coincided with the publication of a consultation paper by the UK’s Financial Conduct Authority, on the classification and regulation of crypto assets in general. The authors reinforce the broad use of the term, defining it as any token that represents a recognized asset or investment concept.
But we should be careful. Often when we say “security token”, we mean “tokenized security.” Both are compelling concepts, but they are not the same thing.
Using them interchangeably is both confusing and misleading. They imply different constructs, different investors and potentially different regulation, and conflating the two isn’t doing justice to either.
The pedant’s lament
So, what really is the difference between a security token and a tokenized security?
In the first instance, “token” is the noun and “security” acts as an adjective or a qualifier. It’s a new technology representation (a token) that shares some qualities with traditional securities.
In the second, “security” is the noun and “token” forms part of the adjective. The phrase refers to a traditional asset (a security) wrapped in a new technology.
In the first instance, the new technology aspect is – or should be – the main focus. Some tokens are classified as securities, others are not, and some are so new in concept that regulators struggle with which rules to apply.
A token that pays out dividends? A security. A token that confers access to content? Not so clear.
In the second, they are obviously securities. Their function is the same as off-blockchain assets – they just run on a different technology.
This makes their regulation easier. As financial authorities around the world have pointed out, the technology is not the focus – the use case is. And a traditional security that is traded differently is easier to categorize and understand than a new type of asset that is making us re-think old definitions.
If we keep calling them both the same thing, we are doing each a disservice.
Taking it further
Tokenized securities are putting a new wrapper around a familiar asset, with a view to broadening the market and enhancing liquidity. It’s not so much a new product for the regulators as it is a new distribution channel, which is much easier to approve.
Security tokens, on the other hand, are a new product. The challenge for regulators and investors is much greater, in that the ramifications and the risks are harder to figure out.
This is not to belittle the innovation behind tokenized securities.
On the contrary – their relative simplicity means that we are likely to see many enter the market in the short term. And while supply is likely to outstrip demand, at least at first, their trading will help investors and regulators to get familiar with blockchain-based markets.
That should help us all to get our head around the concept of security tokens. That’s when the innovation truly gets unleashed.
The known unknowns
Drawing an analogy from the development of the internet, tokenized securities are like the attempts to replicate print magazines online. Access was fundamentally changed and the content’s reach was multiplied, but the format was similar.
Security tokens are more like those applications that nobody could foresee: Snapchat, Twitter, Tinder and connected dog collars that monitor your pet’s fitness.
Both concepts are useful. But only one changed how we run our lives.
The same with blockchain-based assets: Both will transform capital markets, improving inefficiencies and access. But only one will change what we understand capital markets to be.
To give the concept of security tokens the support and space it needs, we should clarify what we mean by the term, and stop lumping everything with security-like characteristics under its umbrella.
Tokenized securities are already here, and we are likely to see a lot of progress on this front over the coming months.
Security tokens, on the other hand, are still finding their place on the innovation scale. Their needs are different from their more familiar brethren – and the sooner we start separating the concepts, the sooner we can get our minds around the potential ahead.
Dictionaries image via Shutterstock
Seven cryptocurrencies performed way better than Bitcoin during January’s market volatility.
HOT, the native token of Holochain project, surprised the cryptocurrency community with a 178% price surge. Augur’s REP followed by posting a 51.50% monthly gain. Chainlink’s LINK came third after rising 39%, while Numeraire’s NMR became the fourth most profitable crypto asset after ballooning 35%. Tron’s TRX, Loopring’s LRC, and OAX’s token of the same name swelled between the range of 31-33% in the same time.
In contrast, Bitcoin had lost close to 10% of its value by January’s close. However, the digital currency still fared better than a majority of top ten cryptocurrencies. Ethereum’s Ether, for instance, fell 27.59% in a month. Bitcoin Cash, an anti-Bitcoin crypto project, also failed to compensate its post-fork losses; it dropped up to 30% in January.
Other than Tron, only Litecoin managed to post profits – a humble 1.87% – among the top ten coins.
#1 HOT Better than Hottest Cryptocurrencies?
A $100 investment in the HOT token would have returned $1,780. Could it get any better?
Holochain, the backer of the HOT token, started rising against the general cryptocurrency market trend from the very beginning of 2019. At that time, Weiss Cryptocurrency Ratings, a US-based independent asset rating agency, named HOT among the cryptocurrencies with the most positive outlook. On the day of the mention, Holochain confirmed that their trade volume rose by 381%, mostly against Bitcoin and Ethereum as quoted assets.
Weiss also mentioned Holochain alongside EOS and Cardano for their potential to create internet 3.0.
“Most will eventually fail. But the potential prize is enormous,” it stated. “If the most advanced cryptocurrencies succeed in creating Internet 3.0 as proposed, they could someday be worth trillions of dollars in market cap.”
From the technical point of view, HOT appeared as a safe hedge against a falling Bitcoin. A new project expects to receive more attention and HOT has been in the trading space since July 2018. In the long run, Holochain’s sustainability as a project would define HOT’s real value. February would see whether or not traders play more upside bets on the coin’s higher high formations. But based on the historical price actions seen in various cryptocurrencies, HOT should correct actively to the downside.
#2 Augur’s REP Strong on Veil Derivatives Launch
Bulls noted Augur’s REP token soon after the project launched Veil, its peer-to-peer prediction market and derivatives platform built on Ethereum mainnet. Later, the project also received investment from 1Confirmation – a venture fund created by Nick Tomaino and backed by Peter Thiel, Marc Andreessen, and Mark Cuban.
In only seven days after the launch followed by the 1Confirmation’s announcement, the REP/USD rate surged more than 100% – from 8.226 to as high as 20.644. However, unlike HOT/USD, the pair underwent a sharp downside correction in the second half of January – bringing its monthly gains to a halt as they touched 51.50%.
REP is now preparing new upside moves, having found a new support area around $10.974.
#3 ChainLink’s LINK Steadily Rising Since Early December 2018
ChainLink’s January performance does not surprise given its history of surviving the November 2018 crash and building a steady upside momentum ever since. Compared to other cryptocurrencies, including Bitcoin, the LINK/USD rate rose and corrected organically than in a rush.
As a project, ChainLink develops tamper-proof inputs and outputs for smart contracts on any blockchain. The company works with Swift, a global messaging system for settling cross border payments, in their Smart Contract innovations. Gartner has rated them as the leader of the smart contract development industry. The reputation helps ChainLink attract clients in the form of established firms and startups alike.
A strong business model explains why LINK, ChainLink’s native token, stayed strong despite the market-wide sell-offs. From the technical point of view, the LINK/USD have recently broken below their rising channel formation. But, a secure support area above 0.3583 is capping the pair’s downside attempts.
#4 Numeraire’s NMR Close January on 35% Gains
Numeraire is another smart contract enabled tool that surged 35% in January purely because of its underlying credentials. The project conducts weekly competitions among machine learning enthusiasts. Those with the best prediction models take away rewards in Bitcoin.
Meanwhile, NMR acts like a staking and betting token for participants. If they win, they take home more NMR tokens. Ultimately, Numeraire creates a unique form of employment for data scientists in a booming machine learning industry.
The NMR/USD rate kicked off January while trading at 2.289 and closed the month at circa 3.236. Technically, the pair underwent a choppy price action but remained inside an ascending channel formation – similar to ChainLink. Traders could have exchanged hands for NMR due to its sustainable use-case in Numeraire platform. In the long term, the coin could pose itself as a safe hedge against bitcoin’s bearish action.
#5 Tron’s TRX Riding High on BitTorrent Token Airdrop
Tron has been the most successful top-ten cryptocurrencies in January 2019, rising 33%. The cryptocurrency was also in positive through most of 2018 owing to favorable marketing. According to its blockchain explorer, Tron blockchain is now posting more transactions than that of Ethereum.
More developers adopted Tron as a blockchain to develop their dapps is faster transaction confirmations and no fees. Atop that, Tron acquires BitTorrent, a widely popular file-sharing platform. The project later announced that it would airdrop BitTorrent’s BTT tokens among TRX holders. That explains why traders ignored selling their TRX holdings throughout January.
Technically, the TRX/USD rate trended inside a symmetrical triangle pattern, giving analysts no clue as to where it would head the next. The pair is still inside the range; it is reaching a bias-conflict scenario.
#6 OAX Token Airdrop Leads to Gains – and Losses
OAX, a decentralized digital asset exchange, was distributing its tokens for free among the participants during the first half of January 2019. The airdrop concluded on January 15, after which OAX/USD experienced a surge from 0.091 to 0.23 in just six days – almost 60%. However, a correction ensured that wiped 52% of OAX value against the dollar by the end of January – a common scenario after crypto airdrop events.
#7 Loopring’s LRC at 33.34% Monthly Gain
Loopring, a protocol for decentralized crypto exchange, posted a 33.34% surge in the value of its native LRC token. However, like OAX, the LRC/USD bullish sentiment exhausted near a post-pump peak point. The pair established a monthly high at 0.1104 before dropping to as low as 0.0532 in a bearish correction.
Nevertheless, Loopring is maintaining a stable support area at 0.0376-0.0323. The levels have seen increasing bullish sentiment, which is why traders are likely to play their short trades towards them before kickstarting the next bull wave.
Hunter Hillman is the head of growth at Connext. Steven McKie is a co-founder of Amentum Capital. Eric Olszewski is an ethereum developer.
Over the past few months, we have noticed a significant number of articles proclaiming the imminent failure and collapse of the ethereum platform due to its inability to scale and its overall lack of user traction. This is hardly a surprise; with many new emerging technologies, we see a similar hype cycle. In Gartner’s famous model, the “Peak of Inflated Expectations” is followed rapidly by the “Trough of Disillusionment.”
In the case of ethereum, we have passed the former and are well on our way through the latter.
The concerns raised in these articles are legitimate, but generally ignore the staggering progress being made daily in regards to scalability. No, ethereum cannot scale to become a world computer in its current state. The throughput is low and the cost is exorbitant. However, these issues were anticipated and have been well understood, since before the launch of ethereum as a blockchain. In this article, we will discuss the various solutions which have been created the past few years to address these limitations.
In the midst of the ICO bubble, high transaction volumes crowded the network and raised the price of gas, the small amount of ether required to power transactions. This brought scaling challenges, which ethereum developers were well aware of and had already begun addressing, though to the media’s attention would make you think otherwise.
While ethereum scaling may be a brave new world for some, the options for addressing throughput have been on developers’ radars for years:
- Scale ethereum itself to be able to handle the increased transaction load (e.g., through the upgrades known as Serenity and Casper).
- Reduce the load on the main chain by moving the bulk of transactions to a second layer an only using the base layer during transaction settlement (e.g., Payment Channels, State Channels, Plasma, and Sidechains)
“Layer One” solutions like sharding and Casper have been on the ethereum roadmap for a few years, but have been plagued by multiple setbacks that have prevented significant progress on the implementation and development front. Even after these improvements, there will still be a need for “Layer Two” scaling mechanisms which provide even higher throughput, private transactions, and lower transaction fees.
Before diving into the various Layer Two solutions, we ask that you think of ethereum as a global settlement layer rather than a holistic world computer. This means that ethereum serves to settle any and all transactions which have been conducted off the main chain and enforce value transfers accordingly. It is this use case of the blockchain serving as an unbiased third party for arbitration on which all second layer solutions operate.
At a high level, any layer two solution follows this formula, or some variation of it:
- Two or more parties agree to a set of rules by which they will be to join and exit a Layer Two solution.
- These parties then encode those rules into a smart contract which requires that each party put down a security deposit.
- After putting down their security deposits, all parties can operate between each other off-chain while submitting intermittent updates to the on-chain smart contract.
- When one or more parties wished to exit the layer two solution, they will typically provide some cryptographic proof that is an accurate representation of each parties’ remaining security deposit.
- There is a challenge period where the proof can be disputed and thrown away. If the challenge period elapses, then the related parties will exit the layer two solution with their updated balances
Layer Two innovations like Plasma and Payment Channels/State Channels, some of which are already processing real payments in production, will facilitate the bulk of ethereum transactions. Scaling a public blockchain (particularly one with such a robust consensus mechanism) is difficult, to be sure. But it is by no means impossible; in fact, smart contract support and the ethereum virtual machine (EVM) allow for novel scaling solutions and greater extensibility than other chains attempting to scale via a second layer with scripts based strictly on unspent transaction outputs (UTXOs), which aren’t as extendable, by design (a different set of trade-offs and benefits, like everything in computer science).
The struggles of distributed applications (dapps) to retain users are well publicized. But years of scaling research and implementation are enabling the user experience and low latency necessary to support dapps with high numbers of monthly active users (MAU).
In short, ethereum’s Layer Two solutions are nearly ready for prime time – with firms like Cent and Spankchain (warning: NSFW), and others, already serving users on the live blockchain – and are poised to upend the narrative that ethereum can’t scale. The following sections discuss limitations of highly-touted traditional scaling methods and make the case for ethereum’s suite of robust, generalizable solutions.
Traditional scaling methods
Most traditional scaling methods boil down to the observation that many interactions don’t require rigorous consensus to be considered final by the parties involved. For example, if a retailer and a customer agree that a service was rendered satisfactorily in exchange for a specified payment, there’s no reason for third-, fourth-, and fifth-party confirmation to occur.
What matters are two factors: (i) certainty that the payer will fulfill their side of the bargain, and (ii) that neither payer nor payee has to trust that a third party will faithfully execute the transaction on their behalves.
This framework allows us to consider off-chain scaling, wherein transactions are conducted off the main blockchain and later settled on the chain. To comply with (i), payers must cryptographically and irrevocably commit to transfer funds; to comply with (ii), those funds must be transferred in a trustless manner and the transaction must be enforceable on-chain if need be.
These criteria underpin bitcoin’s lightning network, which has (rightly) been the subject of widespread media coverage. Think of it like a bar tab: participants agree to pay small amounts over the course of an evening but only settle up at the end of the night. This is an oversimplification of lightning network of course; a more detailed explanation can be found here.
Lightning is undeniably good for bitcoin and holds great potential for Layer Two bitcoin scaling. Due in part to extensive media coverage, lightning is often viewed as a panacea for bitcoin’s scaling issues. Meanwhile, there’s been a slew of articles hailing “Ethereum-killer blockchains” and opining that ethereum is incapable of scaling. In a few words, this is wrong.
First, ethereum is more than capable of scaling payment volume in a very similar manner to lightining. Hashed time-lock contract (HTLC)-based payment channels are just as feasible on ethereum as they are on bitcoin, and in fact, ethereum enables more innovative and user-friendly multi-hop strategies than bBitcoin can, and they can be deployed far more easily.
Because bitcoin uses a UTXO model, funds must actually be passed utilizing traditional cryptographic messaging methods to conduct transactions (even those off-chain). In contrast, ethereum’s account balance system allows for simpler and less costly off-chain balance updates.
For example, Connext’s implementation of payment channels (which has been processing payments in production for Spankchain for nearly a few months) uses “threads,” a multi-hop implementation that allows parties to directly pass balance updates amongst themselves rather than relying on hash-locked payment routing. This is a computationally cheaper, equally fast, and equally secure approach that’s likely better suited to many transaction patterns than lightning.
Moreover, complex contract interactions are a bit more overhead intensive to deploy, as bitcoin scripting is somewhat limiting. The UTXO model, though an excellent method for sending and receiving signed transactions to be verified on a blockchain-based network, means you have to augment your scripts for more novel use cases (i.e. escrows).
With the generalizability of ethereum, and the capability to create tokens, registries, non-fungible assets (like CryptoKitties, or digital identifiers for luxury goods) and other community-accepted smart contract standards, building modular and interoperable contracts that target the EVM is simply more seamless.
Generalized state channels
Smart contract and EVM support on ethereum enables a wide variety of applications that are not currently feasible on non-Turing-complete platforms like bitcoin, due to its architecture and design decisions – which lower its overall attack surface, which in turn puts greater focus on its permissionless peer-to-peer payments use case as its most touted feature.
Because Turing-complete scripts are more complicated to execute than simple transactions, however, these capabilities increase the overall congestion on ethereum (and causes the size of the state to grow at a much faster pace).
We’ve already discussed how payment channels can cut fees and latency for peer-to-peer payments, but ethereum supports much more complex transaction logic that payment channels don’t address.
Generalized State Channels, however, propose one solution to scaling issues associated with complex contract interactions. Right now, stateful contract interactions that enable the use cases that ethereum is known for must be executed on the blockchain. The thinking of many ethereum bears is that as more and more contracts are deployed, function calls will slowly overwhelm the network and drive gas prices through the roof.
Layer One scaling, which has received the vast majority of media coverage, asks how we can accommodate more of these complex interactions on the live blockchain, or mainnet; Layer Two solutions like Generalized State Channels and Plasma (more on this later) ask how we can move more of these functions off-chain, while retaining the security and integrity we’re provided by the mainnet (given certain trade-offs).
The security of payment channels relies on the ability of each party to “go on-chain” and use a smart contract to adjudicate and rectify disputes. That is, payment channels let two parties behave as though they are transacting on-chain even though they aren’t.
Because they have the ability to go on-chain at any time (as the balance updates that they send back and forth carry the weight of on-chain transactions) in a dispute the contract simply decides whose balance update is more recent by polling the mainnet chain. On-chain dispute resolution is costly, though, in terms of time and gas, so rational actors would avoid this scenario. And, if most state channels are using secure and audited standards, we can create interoperable systems with fast finality that are bound by the same cryptographic assurances as mainnet interactions, with drastically reduced, almost zero gas cost.
This approach raises the question: if we can incentivize parties to behave as though a simple contract exists on-chain, can we do the same for more complex logic? One strategy is known as counterfactual instantiation.
There are a few different implementations, but they revolve around the same principle: state is passed into the generalized framework once at the onset and can be manipulated according to a contract specified (but not deployed) when the channel is opened. Dispute cases are adjudicated by the contract as well. Because participants have the ability to go on-chain and invoke the contract, though, all are incentivized to behave as though it exists.
The effects of production-ready Generalized State Channels that leverage counterfactual instantiation will be two-fold:
- Operations involving contracts that can now be counterfactually instantiated will all occur off-chain; the sheer volume of deployed contracts will decrease relative to the status quo. This will reduce network congestion, benefitting contracts that must be deployed on-chain.
- Operations that occur off-chain in Generalized State Channels don’t incur confirmation times or gas fees; this will radically improve user experience and allow ethereum (as a whole) to accommodate orders-of-magnitude-larger transaction volume.
Connext, Counterfactual, Perun, and others are actively working towards Generalized State Channel frameworks which will directly address the network congestion, user experience, and cost issues that many cite as ethereum’s Achilles’ heels. These solutions are enabled by smart contract functionality, are significantly more extensible than UTXO-based scaling solutions, retain the security of the underlying blockchain, and have the potential to unlock the new markets and business opportunities promised by ethereum. We believe that Generalized State Channels have the potential to be as transformative for ethereum as Serenity; whether due to poor information accessibility or inadequate publicity efforts, they have not gotten their due attention.
Lightning was the starting ground for UTXO-based payment channels, atomic swaps, and more. The work that has done by the Olaoluwa Osuntokun, Joseph Poon, and the entire ecosystem lightning researchers and engineers is impressive.
There are a few working implementations of the lightning protocol and specification, including the LND project (by Lightning Labs, headed by its chief scientist, Olaoluwa and written in the Go programming language), and the C-lightning project (written in C).
On top of exciting additions like “Watchtowers” (services that watch your payment channels for fraud, and remain online so your node does not have to be – in return for a fee), the Neutrino wallet (Lightning Labs’ experimental light client, also written in Go), there are a slew of other improvements in the pipeline as the lightning specification and developer community matures and grows.
Some of the hard research is currently focused on: Splicing (partial deposit/withdraw and parallel channel deployment); Wumbo (removal of the channel capacity limit); Multi-Path Payments (breaking a payment into several, allowing for it to be routed over multiple routes – think sharding); Hidden Destinations (public routes for payments to private channels) and more hard work is being done repeatedly at conferences and by independent teams all over the world.
The work by the lightning team and scaling UTXO-based chains – utilizing some bleeding-edge implementations of crypto – is no small feat, and cannot be downplayed. Often, the problem is that people seek to directly compare lightning and ethereum’s Layer Two scaling measures using similar methodologies that don’t consider the trade-offs and unique capabilities the two varying solutions offer, due to the unique architecture of the underlying root chain (i.e. UTXO model versus the account model in ethereum).
Generalized state channels are far from the only option for scaling ethereum. Plasma is a second-layer scaling solution that, in tandem with state channels, seeks to provide additional throughput, and finality, but with some additional trade-offs.
Think of Plasma as a sort of “proto-chain,” one that seeks to mimic as much of the root chain’s integrity and security as possible, just with a varying cost component, which is typically higher than when compared to state channels (due to replicating more of the main chain’s functionality onto a new substrate above it).
Plasma takes the entirety of the off-chain state, and maintains a full state of it, hashed to the root mainnet chain (which has its own set of risk trade-offs, though that’s constantly being improved through additional research).
Though throughput can be greater than the main chain’s, unlike state channels where there is no formal consensus algorithm, Plasma chains can bring their own unique consensus algorithm, complete with its custom block times, too (which possess their own series of trade-offs). Although throughput and finality are not as fast, they are far more accessible when compared to state channels, as anyone can access the root chain’s state that’s been broadcasted and join – whereas state channels are only available to their agreed upon counterparties (in most current implementations). And, state channels are no longer available after a channel closes, making them economic machines with finite lifespans, as they are purposely built to be more semi-permanent.
However, in Plasma, since you have to save every state interaction into the root chain, from your child chain, these costs are higher depending on which version of Plasma you opt to implement. With breakthroughs in how to best implement Plasma happening regularly at many teams spread globally, we’re sure a common standard will arise with a sensible set of trade-offs that can be applied to a wide array of use cases.
Power of interoperable standards
Non-custodial liquidity – and how to most efficiently and securely transmit it in a number of different scenarios involving multiple participants – is an ongoing discovery that continues to expand on the emerging science of crypto-economics and how various mechanisms operate in adversarial conditions.
Standards like ERC-20 (for tokens) and ERC-721 (for non-fungible assets) make ethereum Layer Two scalability tech and dapps more socially secure, given that there are community accepted norms and best practices around which standards to implement for certain use cases. This is especially important when these various standards – which eventually seek to interact with one another fluidly to enable “decentralized finance” – can talk and communicate interoperably, with minimal friction and cost.
Those frictionless interactions and economies that spring up from the novel interoperability between tokens, non-fungible assets, and Layer 2 scalability create further security for the greater ethereum network, because all participants are now intertwined in complex economic activity on the additional layers above it; all being built on secure standards, that were audited and accepted by the greater technical community.
The importance of non-custodial architecture, combined with the path of least resistance to the most extendable and generalizable functionality, cannot be understated. These are crucial components and primitives to bringing new and novel economic machines to life, that thanks to expense, regulation, and computational limitation, were once thought impossible to implement into the real world.
Time for a new narrative
Scaling blockchains is difficult, and ethereum is no exception. But lionizing “ethereum-killer” blockchains, or its pre-existing alternatives, all because ethereum supposedly can’t scale, minimizes the remarkable work that the ethereum community is doing on Layer Two technology. Layer One solutions are in the works and will likely prove transformative for the network down the road, but Layer Two solutions are hitting the market now.
The narrative that ethereum can’t scale and the idea that Layer One solutions are the only plans to scale the network are tiresome and are being actively disproven in production environments on a daily basis. Today, ethereum is a slow and unstoppable platform for programmable money; the potential of such a system is self-evident. An entirely novel financial system could be built on top of ethereum, and Layer Two solutions will pave the way for radical new markets that leverage this decentralized financial stack.
Value transfer, governance, new kinds of markets and incentive structures, community coordination, and even proper implementation of tax policy are possible on ethereum. Ethereum developers see this future and are building the dapps to make it happen. Other Ethereum developers are building the protocols to make the network usable at a large enough scale to usher in that future.
This article is not intended as a knock on alternative blockchain implementations, many of which are pushing forward the bleeding edge of cryptographic research as stated above. Nor is it a case for ICOs, shilling, and misguided hype.
Rather, it is a case for ethereum scalability, for a decentralized economic future that uses the ethereum blockchain as a settlement layer and facilitates the bulk of transactions with Layer Two technologies.
It is a case for the ethereum that we see, and that we hope will get its due in the public eye, and see the light of day.
Ethereum image via CoinDesk archives.