Ve Chain looking strong

VeChain, a logistics focused blockchain partnered with PWC continues to vastly outperform the broader crypto markets.

Here is an interview with their CEO.

He addresses a question which has been on my mind — why shouldn’t fortune 500 companies just launch their own blockchains?

His answer: Of course they can. And they can use those blockchains to transfer information, but transferring information is not the same as transferring VALUE. To have VALUE you need broad public support, and the public seems to want decentralized, transparent, fairly distributed crypto currencies.

Do I agree? Yes, to an extent, though I’m sure an Amazon coin would have value too.

And I think our crypto future is a world in which many businesses, organizations, and even some individuals will have their own money.

A really innovative “hack” on Binance

Leading crypto exchange Binance recently froze exchanges and withdrawals for several hours, terrifying the markets. In the end they reversed suspicious transactions and resumed operations, like the class act they continually prove themselves to be. They’ve also offered a reward for catching the hacker.

Here’s what happened:

A lot of people use publicly available bots to do automatic trading for them.

They give the bots access to log in to their Binance accounts. Since you can restrict fund withdrawals under a different set of security measures, a malicious bot would not be able to steal your funds. They can only trade.

So what’s an innovative hacker to do?

One popular trading bot recently went bad. Instead of withdrawing people’s money, it sold all their crypto currencies, and bought an obscure crypto currency called Via Coin. This happened simultaneously on many accounts, and so the price of Via Coin spiked, presumably allowing hackers to sell the sudden price jump.

EOS Engineering eclipsing Cardano Scientists?

As you know, I think that two projects, EOS and Cardano, stand a very good chance of becoming key infrastructure in our crypto future. And yes, I think the future to a large extent is crypto, meaning a lot of existing institutions will be disrupted.

Overview

For the lay person, I would summarize EOS and Cardano thus:

EOS represents engineering. It’s leader, Dan Larimer has built what I consider to be the two most finished usable crypt products, which do something other than serve as money. These products are Steemit, a social network, and BitShares, a decentralized exchange and lending platform. Both function as DAPPs – decentralized applications with democratic governance mechanisms.

With this experience behind him, Dan is building EOS, which would make it easy for other developers to build applications as sophisticated and complex as Steemit or BitShares.

Cardano represents science. It’s leader, Charles Hoskinson, has recruited some of the best academics in the world, and they’re taking a slow, peer-review approach to development.

Charles Hoskinson was closely involved with Ethereum, and worked with Dan Larimer on Bitshares before they had a falling out.

Cardano seems to be attempting to be both a medium of exchange, and a platform for Dapps.

Buzz

Cardano is producing research papers that make it into prestigious conferences, youtube videos like this one about theoretic problems.

And lots and lots of positive PR.

In my opinion a lot of the PR is somewhat hollow, like this piece which is little more than a restatement of the basic value proposition.

I’m waiting for more.

There’s telegram chat has 15k users, but the content is mostly echos of their PR together with price speculation.

EOS seems to have a much bigger community of the people who matter.

The EOS governance telegram channel has daily intense debates about how voting will work.

The EOS developer channel has programmers asking about the latest releases and how to build application.

And the general EOS channel is about 38k people, and mostly features summaries of other channels and official announcements.

Controversy

There are some hard feeling between Dan Larimer and Charles Hoskinson.

Dan Larimer has offered this specific criticism of the Cardano project.

https://steemit.com/cardamon/@dan/peer-review-of-cardano-s-ouroboros

https://steemit.com/cardano/@dan/asking-the-right-question

My Conclusion

After watching these products and communities for the past two months, I now believe more in EOS than I do in Cardano.

I believe in EOS so strongly in fact, that I’m maneuvering to be a part of the eco-system.

Criticism of EOS

Not everyone agrees with me, and you should read the criticism below before you decide to agree with me.

Here is an accusation that EOS is a scam, based on patterns of the token sale. (I don’t get this criticism because EOS is the only crypto I know that did its ICO as a year-long “dutch sale” which auctioned tokens every day, so that everyone in the world would have an equal shot at getting tokens.)

Back in August, Ethereum founder Vitali Buterin posted this criticism of EOS.

Recently, late night comedian John Oliver made this video ridiculing cryptos in general, and EOS specifically, mostly because of its flamboyant investor, Brock Pierce, who has since severed formal ties with the company creating EOS.

Another criticism of EOS which causes consternation is that Block One, Dan Larimer’s company building the software, is very vocal about promising absolutely nothing in exchange for the token. They insist that they are building open-source software and nothing else, and that the community will launch the actual blockchain in June, and that the distribution of EOS tokens is merely a hypothetical way to distribute the initial allocation of actual EOS tokens. This is justifiably enough to spook many people, but the reasons behind it are clear. There are completely different legal implications between a) building free, open source software which anyone can use to run a stock exchange, and b) running an actual stock exchange.

Block Producers vs Miners

Bitcoin, famously, uses “miners” to solve “proof of work” problems and build the Bitcoin ledger which is an example of a Blockchain.

To add a block to the chain, you have to outcompete the rest of the world in solving a math problem, which occurs about once every ten minutes.

EOS is different. It uses something Dan Larimer invented called “delegated proof of stake”. There are a whole bunch of servers on the internet which advertise that they want to be block producers. Holders of EOS token lock up some of their tokens as “votes”, and point them to any of the block producer candidates.

There’s no gigantic math contest consuming more electricity than the nation of Ecuador, as exists with Bitcoin. The top 21 block producers take turns writing blocks to the ledger.

My biggest concern with this effort is that “whales” (people who hold a lot of EOS tokens) will simply create their own nodes and self-vote. The fact that votes are cast not for individual BPs, but for clusters of 30 BPs may mitigate the potential of malicious whales.

Nevertheless, the Crypto Lions team is campaigning in the hopes of gathering votes from the general community.

Bitcoin and the Banks (and other news)

News Roundup

Goldman-backed startup Circle buys major crypto exchange Poloniex

Poloniex was a mid-tier crypto exchange, having lost some of its prominence to new competitors like Binance and KuCoin. I take this as 1) a sign of Goldman’s hypocrisy — slandering crypto currencies while buying into the eco-system, and 2) an indication that infrastructure continues to move into place for mainstream adoption.

JP.Morgan finally declares cryptocurrencies are a threat to their business;

Despite JPMorgan Chase CEO Jamie Dimon having called Bitcoin a “fraud,” the big bank is now taking cryptocurrency very seriously—acknowledging the blockchain-based technology as a veritable threat to its future.

In JPMorgan Chase’s annual report, released Tuesday afternoon, the bank counted cryptocurrencies such as Bitcoin and Ethereum as “risk factors” to its business for the first time, recognizing the digital currencies as new forms of competition that could, quite literally, give the bank a run for its money.

“Both financial institutions and their non-banking competitors face the risk that payment processing and other services could be disrupted by technologies, such as cryptocurrencies, that require no intermediation,” the bank (jpm, -0.13%) wrote in the report.

Bitcoin fast and cheap again

Bitcoin transaction fees started 2017 at an average of $0.30 and peaked at over $40 in December.

The fees for sending a Bitcoin transaction are once again, pennies. Though improvement have come online — most notably the lightning network which certain types of transactions “off chain” and faster, and segwit transactions which make them smaller in terms of storage space — the overall reason for the disappearance of scalability issues seems to be that fewer transactions are happening. December saw a lot of speculation. After the January-February crash, there’s less traffic.

Since the beginning of February, Bitcoin’s dominance — ie its representation as percentage of the value of all crypto currencies — has risen from about 33% to 42%.

Reports: Venezuelan ‘Petro’ Cryptocurrency Fails to Raise Any Money

Venezuela has failed to provide evidence that its new national cryptocurrency, launched by Nicolás Maduro’s socialist regime, has raised any money at all, cryptoanalysts have claimed.

Last week, Maduro claimed to have raised $735 million for its “petro” pre-sale, a cryptocurrency supposedly backed by the country’s considerable oil reserves. . . .

As of today, the official website allows you to register — if you’re patient enough to endure a myriad of errors — maybe you’ll get a confirmation email hours later, which you’ll have to click before the timeout expires and only then you can tell the government how much you’re willing to donate to their cause of ruining Venezuela. And when you click the button to buy, nothing will happen.

You can register with a fake name and passport and say you’re going to buy a gazillion PTR. That’s what was launched. There’s no way to actually buy the damn thing or set up a petro wallet.

Even if they were less incompetent, they’d still face an enormous distrust of centrally controlled digital currencies. Goldman Sach’s and company keep talking about launching their own currency. They’ll face the same skepticism.

Vitalik Buterin’s New Idea – Controlling the Tap for a Better ICO

Ethereum creator Vitalik Buterin has criticized the corruption in the ICO space several times. He has proposed an ICO structure in which funds are locked in reserve, and investors can vote to unlock them only after the team completes certain milestones. I expect such decentralized governance to become increasingly prominent.

After the Crash

My opinion has not changed. In the long run, the value of cryptos will resemble a technology-adoption S curve. The December/January rally attracted a lot of new, easily frightened investors who don’t understand crypto.

So what happens next?

The fact that crypto currencies allows us to do things not previously possible remains true. A lot of projects (good and bad) received insane levels of funding in 2017 and 2018.

Some of them will create value. As this becomes obvious (or perhaps sooner), expect another round of Euphoria, tempered by memories of the January/February crash.

And then reckless euphoria.

And then another crash.

The Jan 2018 Crash

Bitcoin and the Broader Crypto markets have has their worst % crash since 2013.  The fear, uncertainty, and doubts (FUD) doesn’t seem to come from any specific bad news.  Worries about Tether’s reserve are many months old.

It seems like it’s native to crypto markets, the uncertainly surrounding a new technology and new paradigms, perhaps exacerbated by a lot of new money coming in with short-term thinking.

Here’s a history of Bitcoin’s Crashes:

While new investors certainly got clobbered, we are only down to December prices.  Even medium term perspectives look positive.

Crypto News Roundup

New & Views

• Philosopher, Author and Economist Nassim Taleb on Bitcoin as our bulwark against tyranny:
“[Bitcoin’s] mere existence is an insurance policy that will remind governments that the last object establishment could control, namely, the currency, is no longer their monopoly. This gives us, the crowd, an insurance policy against an Orwellian future.”

Some globalist at Davos suggested Bitcoin should be regulated out of existence:

Addressing Bloomberg TV audiences during the annual event in Davos, Switzerland, the professor and Nobel Prize winner said that cracking down on “secret” Bitcoin use cases would “regulate it out of existence.”

“We have a good medium of exchange called the dollar. We can trade in that. Why do people want bitcoin? For secrecy,” he said.

Coincheck, a Japanese crypto exchange was hacked for the equivalent of $530M, the largest sum ever in dollar terms.  However in % of market terms, it’s no big deal compared to the 2014 MtGox hack, which was also based in Japan.

Bitcoin’s much-discussed lighting network has entered test mode !  It’s a protocol that sits on top of Bitcoin.  It allows channels of parallel transactions, and limited scripting.  In other words: faster, cheaper transaction, and smart contracts which currently exist on platforms like Ethereum.  In an earlier newsletter, I predicted this would happen only at the end of the year.

Binance CEO, Zhao ChengPeng

If you’re assessing the space of crypto currencies as a whole, you must absolutely listen to this wonderful speech by Binance’s CEO, Zhao ChengPeng. He’s a pillar of the crypto world.

His company, Binance, emerged in just six months as one of the biggest (on some days THE biggest) crypto exchange. They do $10B in trading a day.

He speech covers the practical as well as the visionary. He talks about about Binance’s growth, their criteria for listing coins, and how they’re starting to incubate crypto projects.

Can you still call crypto currencies a bubble after an almost 50% crash?

Over the course of Bitcoin’s nine year history, there have been at least a half dozen crashes similar to last week’s near-50% dip.

Prices have recovered somewhat. Bitcoin’s market dominance remained pretty steady throughout the crash and recovering, peaking at 37% during the worst day of the crash, and now representing about 35% of the value of all crypto.

I think that within the crypto space, Bitcoin represents stability.  (The next newletter will outline Bitcoin vs everything else.)

So is it a bubble?

Here are the accurate arguments for each camp:

Crypto Currencies are a Bubble

– Compared to normal businesses, many crypto currency projects have outrageously high valuations, especially considering how many of them are still at the idea or prototype stage.
– Many crypto investors have only seen huge success and are excessively exuberant.
– Many crypto investors make investments with little or no serious research.
– The deluge of money has attracted unsavory entrepreneurs.

Crypto Currencies are not a Bubble

– Crypto currencies are a new technology that allow people to do things which were previously impossible, namely structure incentives with strangers in a way that does not rely on trust.
– Crypto currencies solve real, tangible, important problems.
– Normal people have access to investment opportunities like never before. The most charitable explanation you can give to the ridiculously high valuations of idea-stage projects is that people are willing to risk failure and fraud to have a stake in world-changing research.
– The values of crypto currencies will not go to zero.

Carnage!

The aggregate value of all crypto currencies tumbled from $700B to $550B today.  This was the worst single day in recent memory.

However the monthly chart doesn’t look so bad:

As with many previous market tumbles, this one was driven by news from China.  The Chinese government announced a plan to block citizens of accessing foreign crypto currency exchanges. I’m sure the panic was exacerbated by profit taking from the recent bull run, as well as the many new investors who entered the market.

Continue reading “Carnage!”