Cardano vs EOS

Both of these projects are in the early stage.  Both have proven crypto entrepreneurs behind them, and based on that fact, both have exploded into the top ten most valuable crypto currencies without yet having a product.

I think they’re both going to have bright futures, but I’ve listened to enough of Cardano’s Charles Hoskinson, and EOS’s Dan Larimer and that I think I grok how each regards its advantages and the other’s weaknesses:

Cardano camp:
• EOS will have scaling problems just like everyone else.  They aren’t designed from the ground up for a billion people and it’s hard to make changes to a system already functioning.
• They did not do the hard work of proving that their systems, including Delegated Proof of Stake, are cryptographically secure against a precisely defined threat.
• They are not following the most rigorous procedures for designing and deploying software.   This is a bad way to build something as important as financial infrastructure.

EOS camp:
• We may not have theoretically limitless scaling like Cardano, but we will have enough to cover planet Earth.  That’s enough . . . for now.
• All code is fallible.  Your kidding yourself if you think otherwise.  Our human-first approach aligns incentives correctly and gives the right people authority to react to problems and fund their resolutions.

There are other competitors too, of course.  Including but not limited to:  NEO, NEM, Enigma, Stratis, Qtum, Waves and many, many others.

Perhaps I should also summarize Ethereum’s Vitalik Buterin’s criticism of EOS:

Short version:  “Delegated proof of work” is not really decentralized because there are only hundreds of nodes that do all the work.

Short version of how I understand Dan’s response: There are thousands of nodes TRYING to do the work, and it is up to holder of the currency to nominate / approve / vote for who does the work.  This is a better alignment of incentives that relying on miners (74% of whose capacity is in China, btw) who are not even necessarily holders of large quantities of the currency they mine.

Short version of how I think Cardano’s Charles Hoskinson would respond to the debate: You didn’t invest in rigorously specifying your criteria and mathematically proving your security.

Coin Watch – Stability Coins

There’s a category of crypto currencies which can be easily be called “stability coins”.

By far the most prominent is Tether. It is listed on most major crypto exchanges, and it presumes to be pegged to the US dollar.

The value for the trader is obvious. If a trader is expecting a crash of the whole crypto eco-system, he can transfer his wealth to dollars.

The value for the exchanges is also obvious. They outsource legal liability to the company that issued Tether. Instead of trading dollars, which have a myriad of legal consideration, they trade these digital tokens.

Unfortunately, Tether seems to be running on promises and wishful thinking. The Hong Kong company behind it did three months of monthly audits which abruptly ended in March 2017. There were rumors that banks blocked transfers of dollar into the company’s bank accounts.

So it seems unlikely that Tether tokens are backed by actual dollars. Despite this, Tether is currently trading at $0.997326, and has a $1.6B market cap.

Nubits and Dai and other stability-coin projects, which, unfortunately, I have not had time to research.

And then there’s bitUSD.

There’s also bitEUR, bitSilver, and bitGold, but they all work the same way. And it seems to me, this is by far the best digital peg I’ve encountered. I’ll explain how they work.

They all exist in bitShares, which started as a Dan Larimer project, but now runs as a Decentralized Autonomous Community (DAC). BitShares is a decentralized exchange. It’s also a system of governance, a lending platform, and many other things. You can trade Bitcoin and a few dozen other currencies. bitShares has its own money, namely, bitShares.

BitShares, unlike, Bitcoin, has a big supply of its currency that owned by the system. This is called the “reserve pool.” The BitShares community can vote to inflate the reserve pool for specific projects. To vote, you need to own Bitshares. I like how this aligns incentives. Imagine the people who hold US dollars voting whether to inflate, and how to distribute the newly create dollars, instead of the Federal Reserve doing so.

Anyway, back to bitUSD. Every bitUSD is backed by the bitShares reserve pool. So you can hold bitUSD for however long you want, and when/if you ever redeem them to bitShares, you’ll get the exchange rate at that particular moment. Right now, bitShares are about $0.50 each, so if you redeemed now, you’d get two bitShares for every bitUSD.

Furthermore, they keep a 200% reserve of bitShares. So if the supply of bitUSD is $1M, and each is redeemable for two bitShares, they keep a reserve of 4M instead of 2M.

Lastly, there’s an automatic mechanism which will liquidate bitUSD and trade them from bitShares in the event of a BlackSwan event that causes a very fast and dramatic fluctuation in the exchange rate beyond the reserve pool’s ability to cover it.

The same is true for bitGold, bitSilver, and bitEur. This seems pretty damn awesome.

Currently these assets are only traded on the BitShares decentralized exchange, but they’re trying to get them onto centralized exchanges.

Other interesting things about BitShares:

• BitShares has a deflation as as an inflation mechanism. Holders of Bitshares can nominate and vote on specific projects and then inflate the reserve to pay for them. Whenever you make a transaction, part of the fee is destroyed. That’s the deflation mechanism.

• I could not believe it actually works so well. The interface is about as good and responsive as those of centralized exchanges. And the exchange fee is literally fractions of a penny, in contract to the 1% which centralized exchanges usually charge.

• BitShares, as well as Dan Larimer’s current project EOS, have received criticism for being only loosely decentralized. There is a limit of hundreds of key nodes which do the actual work, instead of the limitless number in Bitcoin and Ether. Dan Larimer calls his approach “delegated proof of stake”. Holders of bitShares can nominate, hire and fire nodes. This architecture seems to give BitShares (and will give EOS) performance that I really didn’t think was possible. Dan argues that his approach has better dencentralized because while theoretically anyone can mine Bitcoin, in reality 75% of the mining power is in China, and they’re the ones making decisions. And it’s miners, not the holders of Bitcoins don’t directly make decision about the future of Bitcoin.

I am amazed by bitShares. It seems to eclipse the value propositions of other projects. For example, bitshares can do loans against 90% of the value of a digital asset that you put in escrow. Lending in the lone value proposition of SALT, which has a $400M market cap.

And their decentralized exchange is active and easy to use. I think what I wrote in my previous newsletter may have been wrong. Decentralized exchanges are not far away — at least not if you accept Dan Larimer’s “delegated proof of stake” as sufficiently decentralized.

Bitcoin vs the Alts

Reasons to bet on Bitcoin:

  • You think there will be a pull back from Bitcoin’s market dominance shrinking from 85% to 35% in 2017.
  • You think the lightning network will solve enough of Bitcoin’s scalability problems.
  • With a market cap of $180B, you feel there’s enough financial pressure on Bitcoin to solve all of its problems.
  • You think Bitcoin will begin competing with Ether and others as a smart contract platform.
  • You think it will be the entry point of a lot of new money entering the crypto space.
  • You the nine year track of Bitcoin and the proof-of-work consensus mechanism safe and reliable as compared to newer technologies.

Reasons to bet on something else:

  • You think the decline of Bitcoin’s market dominance from 85% to 35% will continue.
  • You think there are many niches and value propositions which Bitcoin does not address.
  • You think the lightning network is not a full solution to scalability.
  • You think “mining” and proof-of-work, as compared to other consensus mechanism, is stupid.
  • You’re worried about infighting in the Bitcoin community and its lack of formal governance mechanisms.

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.

The Individualization of Money

Many Monies

In the future, most companies, most organizations and even some people will have their own currencies. Anyone will be able to become their own central bank.

Exchange and currency conversion will happen instantaneously through our electronic devices, and invisibly, though most currencies will be fully auditable for those of us who want to look under the hood. Many competing currencies create pressure for transparent honesty.

Merging roles of Customer, Investor and Business Partner

A consequence of the individualization of money is that the roles of Customer, Investor and business partners will merge. The distinctions will blur.

customer to investor

Customers, especially those planning prolonged business with a merchant, may keep a reserve of that merchant’s money, thereby becoming investors and becoming richer or poorer based on fluctuating demand for that merchant’s money.

customer, investor -> business partner

Anyone who hold’s an organization’s money, whether customer or investor, gains the incentive to advocate for that organization, because then the value of the money would rise. This is already evident in the crypto space, as holders of a project’s money become willing marketers, advisors, and auditors.

investor -> customer

The preferred method of investing in the crypto space is to simply receive a portion of a project’s unique money as an alternative to formal remittance.

business partner -> investor

Crypto businessmen, often make their biggest gains simply by holding the digital tokens or crypto currency associated with their projects. Some, like Satoshi Nakomoto and Dan Larimer, transform their organizations into Decentralized, Autonomous, Communities (DACs), and step away, letting the community manage itself. Their long term role transforms into that of an investors and customer.

Coin Watch – What does the token do?

my plans for “Coin Watch”

After spending the majority of my time over two weeks learning about crypto currencies, it’s become obvious that no one person can keep up.

I hope to keep a running list of categorized currencies, which will include the categories I mentioned in newsletter #8.

  • Investment Coins
  • Content Coins
  • Smart Contract / Application Platforms
  • Prediction Markets
  • Misc Crypto Infra Structure
  • Community Building
  • Supply Chain Management
  • Web 2.0
  • Decentralized Exchanges
  • Decentralized Computing
  • Advertising

I’ll add another category: stability coinsTether is the most famous — it presumes to be exchangeable for dollars.  Its price rose to $1.03 during the crash.  There’s also DAI.  I found it by looking for coins which weren’t red during the crash.  I don’t know how DAI works, but I understand that there are a bunch of projects like “Chain Link” which I categorize as infrastructure, which try to connect crypto currencies to real world things.  If chain link could reliably broadcast the price of gold, for example, then another crypto currencies could, for example, use some scheme to remain proportional to the price of gold.

I’ll try to keep doing that because  it offers some structure for understanding a complicated space, but some weeks, I’ll just publish my disorganized research and views and different coins.  Like this:

Two to Avoid(?)

I’ve decided that two coins are probably best to avoid:  Monetha and Black Moon Crypto.  They’ve both raised so much money that they may go on to produce great product anyway.  But in any case, I’d steer clear.

Monetha claims to be a payment system with a trust mechanism.  This is a simple, important value proposition for which other coins are also competing.  Who ever pulls it off will make a lot of money for themselves and their investors.  My concern:

– Weak answer to the question of why someone will adopt them and not someone else.
– Marketing is just a little too slick.
– Too many of the lower-brow crypto youtubers have made what seem to me like hype videos praising Monetha.  “Monetha (MTH) The Sleeping Behemoth!!”
– In all their forums, in their chat, which I’ve been monitoring, and  under all their articles and video, there are huge number of hype comments about the price potential.
– The CEO was previously a model and a DJ, and doesn’t have a tech background.  (My recurring business partner is also a DJ.  I have nothing against DJs.  But the lack of a tech background stands out.)
– He makes very professional videos aimed at crypto beginners, which seem devoid of substance.  One of them was about avoiding pump and dump schemes.  If he is self-consciously a pump and dump scheme then this is typical psychopath behavior.  If he isn’t, then I would still wonder why is doing public service announcements instead of busying himself with building a company.
– In a recent interview of their lead developer, I thought I saw fear in his eyes.  The video seemed to over-hype a not-very-important milestone.
– They seem to quickly identify and aggressively counter negative press.

Black Moon Crypto is an Ireland-based company run from Moscow.  They’re one of the Investment services coins I listed in newsletter #8.  Their value proposition includes being the only investment coin through which users can invest in real world assets.  It seems like they’re a more-or-less legitimate investment company AND they’ve launched a crypto currency.  And it seems like these two facts exists uncomfortably side by side, like new roommates, and nobody has decided what each has to do with the other.

– Their white paper is vague and full of marketing nonsense.
– There seems to be confusion whether the company was founded in 2014 or 2016.
– Despite listening to over an hour of interviews and reading their white paper and other materials, I can’t figure out what anyone gets for holding their coins.  The tie between an organization and its crypto currency is a key aspect of evaluating cryptos.

There are suggestion in their interviews and marketing materials that holders of BMC coin will have the privilege(?) of working for BMC by doing marketing, legal, or other clerical work.  This makes no sense to me.  They also said that holders of a lot of BMC tokens will participate in their strategy sessions.

So it’s like a game of pretend.  They’re a normal investment company (or perhaps I should say, a normal Russian investment company), which raised tens of millions of dollars selling these digital tokens.  And now they’re really really trying to create the impression that these tokens mean something, though it seems like they themselves aren’t sure how they’ll use the tokens.

Their market cap is about $30M. I’m not sure what portion was sold, but it’s typical for issuers to keep anywhere from 10-50% to cover development costs.  So, there’s probably plenty of capital to pull something off, even if the original idea was vague.

In a recent interview, the CEO spoke about “fund tokens”, and setting up different funds where investors can simply buy tokens and collect dividends. Of course this is a great idea, and after raising so much money, they have the capital to pursue it. But what about the already issued BMC token? It’s certainly possible that I misunderstood something, but to me it seems like it’s backed only by vague promises.

 

Other investment coins

There are two other crypto currency investment projects which seem to be doing the hard work of building a platform for investment fund management, where the holder of a token has a cryptographic guarantee of a fixed share of the fund’s profit.

Those projects are Swiss-based Melons which I mentioned in newsletter #8, and Czech-based Iconomi, which I didn’t mention despite it being a top-100 crypto currency. I simply hadn’t known about it.

I had also written about the Kyiv-based TAAS project. This is an investment fund, a digital one, which not only claims to pay dividends to token holders, but has a track record of doing so. However there’s no crypto graphic guarantee. I heard a rumor that the guys behind it are both overwhelmed and a little intimidated by TAAS’s $60M market cap, as if they didn’t expect their experiment to go so right.

Here too there are no crypto graphic guarantees. You have to trust them. I guess I’m not as hard on them because aside from being the home team, they’re geeks, and not finance people. TAAS recently announced a relationship which another crypto currency called Bancor which is a top-100 coin that calls itself a “liquidity network”. I think it’s a decentralized exchange, though I’m not sure.

Misc Coin Watch

Cardano – I remain very confident that this project has a bright future.  They’re late comers to the smart contract space, but their engineering team, methodology, and network of experts is second to none.  Their founder was a co-founder of Ethereum, whose value proposition Cardano aspires to address even better.

Rchain – I recently discovered Rchain.  It’s only traded on obscure exchanges.  It’s the only other project besides Cardano that uses some technological approach to scaling called “lambda” (?), and it’s team also contains Ethereum veterans.

Both Cardano and Rchain seem like the opposite of Monetha.  They’re both hugely technical with weak marketing.

Hacken – This is a small Ukrainian projects (market cap $15M) which I’m mentioning because I think it illustrated the weakest possible, but still viable justification of crypto currency.  Hacken is a network of hackers, including some world-famous ones, apparently, who’ve created a community where companies can ask for security testing.  By insisting on getting paid in Hacken tokens, they’ve created a way for people to invest in this project, and it gives them the capital they need for marketing and other expenses.  This is the weakest possible justification for having a currency, but I think it’s viable.

From what I understand, many large American companies had their own currencies in the mid 19th century (though it was for building loyalty rather than allowing investment).  Also in the video of Binance’s CEO posted above, he envisions a future in which many services, many businesses, and even many individuals have their own currency.  It’s a beautiful vision.  It allows anyone to invest in anything.

Tether & DAI – Stability coins, tether, by far the more popular, is pegged to the dollar.

ByteBall – I guess it’s a competitor to Iota.  Like Iota, ByteBall doesn’t use a blockchain, but a tangle. It recently exploded into the top 100.

Oyster Pearl – In newsletter #8, I described this as an advertising coin based on it’s ambition to give websites a different scheme of monetizing.  Instead of showing ads, website owners can burden their visitor with the requirement to do a little math on their devices.  Since then, I’ve learned that Oyster Pearl uses a tangle instead of a blockchain, and that it also tries to do decentralized file storage.  At first glance, these disparate value propositions seem far afield from one another, but the community is enormous and active.  I think they’re re-imagining the internet in a similar way to projects like substratum (which I like), and Tron (which is probably over-hyped).

Salt – A lending platform that allows users to put up digital assets (like a bunch of Bitcoin) as collateral.  Lenders have a crypto graphic guarantee of the collateral.  I’m not sure how the platform attempts to see the real world and determine whether / when loans are paid back.  Salt is a top-50 coin.

Ardor & Gnosis – These are the two most prominent prediction markets.  Ardor was first, and is in the top 50.  Gnosis came later and surprised even hard core crypto believers by raising a $300M ICO.  It’s in the top 100.

Loop Ring – I looked at loop ring a month ago and couldn’t figure out what it does. It seems to be a middle layers that allows you to interact with it instead of going to crypto exchanges.  I guess I misjudged it.  It has since exploded into the top 50.  Perhaps it’s similar to Bancor which bills itself as a “liquidity network”.

Publica – Publica is a content coin trying to revolutionize the book industry.  I’ve listened to at least an hour’s worth of interview of their affable CEO, and I’m still not sure precisely how what their tokens do.  However, they’re well funded, they have a huge community, lots of connections in publishing, and they say that they’ll do a beta launch tomorrow.  Their market cap is about $25M.

Generally, I’m more wary of customer focused projects built on top of a smart contract platform because there are important scaling questions hanging over everything.  We don’t know which platforms will survive.  Thus I’m more interested in Cryptos which take the role money, or in infrastructure-type projects.  Publica is built on top of Ethereum which is going to have scaling challenges.  However they’ve said they’re ready to change platforms if necessary.

I guess I like it because I know the book industry.  I’m both a published, and self-published author.  (See my books here.)  And I can imagine it working.  Your investment in something should be proportional to your understanding of it.

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.

Coin Watch

In newsletter #6 I wrote that I’d be looking for token system to start working in 2018. I was wrong to write that. They’re already working, as evident in the descriptions below.

In an attempt to keep up with the rapidly changing world of crypto currencies, I’ve sorted a few dozen into the following categories.

Smart Contracts

Continue reading “Coin Watch”

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!”