📌 An opinionated recap of the most interesting news in crypto
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Announcing the 2018 Hiking Unplug Retreat
The 3rd edition of the Unplug Retreat is here!
This year, we're hosting it right after ETHBerlin and the Berlin Blockchain Week. From September 12th to the 14th, you can connect with fellow crypto investors and entrepreneurs surrounded by the majestic Dolomites.
A long, thought-provoking post by Luke Duncan of Aragon.
There are a few thesis in here: - the NPV valuation of work tokens is silly because it usually doesn't take in consideration the effects of commoditization in the equation. - the relationship between the price of a token, the willingness of the suppliers to purchase it and the quality of service in a network, and consumer loyalty is what "bands" the potential token price. - value will accrue in the currency-governance layers
But in the end the main thesis is that, while MoE tokens aren't sound, "community currencies" are the answer.
"Community currencies compete by differentiating themselves based on technical trade-offs, overall utility, political ideology, memetics value (DOGE! 🐶), and various other economic risk and reward vectors. These factors are reflected within a community’s governance processes and monetary policies."
The argument is that "instead of suppliers of a service protocol enforcing a arbitrary medium of exchange, community currencies use monetary policy and governance to create an asset which caters to the specific preferences, values, and use cases that matter to a community of consumers."
As much as all of this is extremely interesting (and I've been a huge fan of local community currencies over the years), I don't find a whole lot of substance in this distinction between MoE tokens and community currencies. In my view, most of the critiques that can be levied on MoE tokens can also apply here.
Luke's point resides in Aggregation Theory, a famous Stratechery theory that states that by leveraging a comunity's loyalty while aggregating and commoditizing suppliers you can create value.
Maybe Luke has a point. I mostly feel we're going towards "unknowable horizons", but it's still fun to think about this stuff.
Continuing on the topic of valuations, Max & team Fabric Ventures have consolidated their views on utility tokens, with a post very cheekily titled...
First, they make a clear distinction in taxonomy between payment and utility tokens, where the former are effectively either commodities or currencies and as such are subject to the velocity issue that many have described already. In that bucket they include Ether, for now at least (i.e. pre-Casper).
Secondly, they outline ways in which the design space for pure utility tokens allows for value accretion as the networks grow, with the example of a 'taxi medallion' type work token where native tokens are required to coordinate and secure the network.
Thirdly, they contend that forkability, while technically free and possible for all in theory, is a much less trivial process in practice as code does not come with community, brand, developer tools, ecosystem etc.
Lastly they argue, as others have done in the past, that the MV=PQ equation isn't best suited to value these sort of networks where the token is essentially a license to perform work and earn a reward for it. For those a good old DCF should more accurately do the job.
Nothing particularly new under the sun overall, but great to see these arguments eloquently put together in one thesis.
Another thought-provoking post by Qiao, somewhat related to the one just above in that he too is sceptical about the religious use of MV=PQ for valuing crypto assets.
Qiao shows actual data from both the crypto and fiat worlds to refute the dichotomy between SoV and utility and the negative correlation between value and velocity.
The theory behind the data is that of complementary network effects: in a world where developers no longer need to worry about making technical trade-offs between scalability, decentralization and security, an increase in utility ought to make an asset a better SoV, and vice versa. Case in point being Bitcoin, where utility-like features such liquidity and transaction fees make it a more secure and widely accepted SoV.
It's pretty technical, so skip it you are allergic to formulas and spreadsheets.
The amount of thinking and work that has gone into better understanding how to value crypto assets over the last 12 months is pretty incredible. Still a lot of ground to cover though since every thesis laid out so far has yet to play out.
The topic of crypto network acquisitions is always fascinating.
Coinlist's CEO offers a blueprint:
1) Announce as broadly as possible
2) Pay to be bought
3) Airdrop to exiters and drive the old network down
4) Bribe the holdouts
It's thought-provoking post and it's a fun area to spend mental cycles on, but my opinion is that if any network merges happen, they will need to come up with some massively creative ways to pull it off. These could be mix of forks, side-chain pegging contracts and who knows whatever else.
PS: Nathaniel curated other great literature on token networks M&A in a handy Twitter thread (love this format!).
A fascinating post exploring the problems of on-chain governance and blockchain voting.
The team at Hacking Distributed presents their finding in a quite "dark" article stating that basically all on-chain governance protocols will degenerate in plutocracies.
One key attack that they explain is the Hidden Trusted Hardware Cartels (Dark DAOs). In this scheme users could prove with trusted hardware that they are voting and could be rewarded for that.
It's really worth the read.
The core insights listed at the end are: - Permissionless e-voting *requires* trusted hardware. - The space of voting and coordination mechanisms is massive and extremely poorly understood. - The same class of vote buying attacks works for any identity system. - On-chain voting fundamentally degrades to plutocracy. - Hard fork-based governance provides users the only exit from such plutocracy. - Multiple blockchains interacting can break the incentive compatibility of all chains.
In conclusion: "We encourage the community to be highly skeptical of the outcome of any on-chain vote, specifically as on-chain voting becomes an ever-important staple of decision making in blockchain systems."
If you've found the above to be overly pessimistic, this is a presentation by Nic Carter and Odysseas Sclavounis that explains why decentralized governance matters and different types of on-chain governance in a simple way.
Fred Wilson reminds us all that USV have always been thinking well ahead of the curve.
In a post from January 2007 Brad was already talking about governance becoming the next big thing in software. Now that crypto has brought us the idea of decentralized governance, it all starts to line up.
The implication in a world were code and data are open sourced is that competitive advantage may start gravitating towards the values embedded in governance design. This is a similar thesis to the one Placeholder outlined recently, not surprisingly after all as Brad and USV are closely involved.
Worth a thought in the context of Bitcoin's POW problems: centralization, cost, impossibility of average user to participate in the process.
PoWx is a new foundation that's proposing a new POW mechanism, called Optical Proof of Work, that employs lasers and would be more energy efficient. Obviously they'd also be creating a for-profit company to then produce the miners.
We've included this as it sparks some thoughts around improvements to PoW, which will be necessary in the future, but also at how creative new businesses can get in this new world.
Interesting posts comparing the difference in approach between crypto-incrementalists and the crypto-anarchist approaches to different use cases.
"I believe crypto-incremental and crypto-anarchic projects can coexist. Where we see problems is in the widespread conflation of crypto-anarchic properties with crypto-incremental projects. Early crypto evangelists have been so successful in promoting censorship resistance and privacy that many assume that all crypto projects have or will have these properties. This is a dangerous misconception, as it’s highly unlikely (mostly impossible) that a project can go from crypto-incremental to crypto-anarchic. Crypto-incremental projects are simply not contenders for use cases that require crypto-anarchy, but many market themselves as contenders because the “value” of those use cases (e.g. unseizable money, permissionless platforms) is much higher than an incremental improvement to an existing system."
For clarity of biases, SB is square on the crypto-anarchist side of things, believing that absent censorship-resistance blockchain technology isn't that interesting for most use cases.
Tim Swanson op-ed on Diar is worth a read as it nicely encapsulates the regulatory grey area surrounding crypto after Hinman's statement on Ether and use of sufficient decentralization as a test (on that, it was pointed to us last week that we have referred to that statement in the past as a "SEC statement" while technically the SEC disclaims responsibility for it and attributes it to the author, reserving the right to have different views, so apologies if anyone got confused).
"The wording and justification for why Ethereum is not still a security – that it somehow at some point became sufficiently decentralized – seems ripe for debate and will surely be gamed by future coin and token sales. Without explicit parameters, if Ethereum is sufficiently decentralized, then so to – at some point in the future – could HoweyCoins. And then it’s no longer a parody."
Tim closes encouraging the SEC to now open up a public comment period or to start gathering credible opinions on how to quantify decentralization.
Blockgeeks published a simple easy guide to programming in Vyper, the new EVM language.
Definitely worth a look if you want to wet your feet in Ethereum development but are scared of building unsecure code with Solidity.
- Sandboxes. The UK FCA has announced the 29 companies selected to be part of its 4th regulatory sandbox cohort. Lots of "DLTs" in the list (11 out of 29).
- Stability. Adoption of DAI is accelerating, so much so that MakerDAO had to increase the debt ceiling (ie maximum number of DAIs to be minted) from 50M to 100M well ahead of plans.
- Exchanges #1. The owner and operator of the Swiss stock exchange will launch a fully regulated cryptocurrency exchange. In the words of its CEO: "This is the beginning of a new era for capital markets infrastructures".
- Exchanges #2. Invest.com is going crypto. too. It is partnering up with Bittrex to launch a crypto trading platform for EU customers.
- SAFU. Binance is creating a Secure Asset Fund for Users (SAFU) by pooling 10% of its trading fees into a cold wallet to face extreme situations like what happened this week with SYS. And the memes are already going wild.
- Govts. The Australian government has awarded IBM with a AU$1B contract to modernize its tech stack using blockchain, automation and AI.
- Lawsuits. Ripple Labs is hit by a third class action lawsuit for alleged promotion, sale and solicitation of unregistered securities related to XRP.
- Safety. MyCrypto is removing support for private key from its online service.
- Custody. Coinbase have started onboarding customers from US and Europe onto its custody product, with plans to launch in Asia by year end.
- Moves #1. Michael Alexander will be the manager of EOS's VC fund, which is around $1B in size. He'll be based in HK. He was previously the Asia lead for Jefferies.
- Moves #2. FB is all in on Blockchain Evan Cheng, a senior Facebook engineer, updated his LinkedIn title to "Director of Engineering, Blockchain." This is after extremely high profile internal moves to focus on blockchain, most notably David Marcus and Kevin Weil.
- 😂LOLZ. The head of the Bank of International Settlements asked people to stop creating money and also said "It's a fallacy to think money can be created from nothing".
Goal #1 of the Stellar roadmap outlined in January was to build a front-end for its inherent decentralized exchange. At the time Stellar announced they had just "recruited a veteran team" to work on it.
Fast forward 6 months, that team has come out of the wood unveiling StellarX, a 3rd party trading client for Stellar, natively exposing its publicly accessible order book and enabling free wallet-to-wallet on-chain trades for any Stellar token. Launching publicly later in the summer.
The StellarX team comes from the non-crypto world, having built some very successful consumer web apps so we really look forward to seeing what they ship and how much liquidity will flow through it. It's also interesting to read why they "picked" Stellar as a platform:
"Stellar is a fantastic settlement backend that has, until today, had a very basic frontend. The technology is solid. It’s just, historically, been hard to understand and use. Compared to over-valued, under-built technologies, (stuff like, I dunno, 95% of the things listed on coinmarketcap), we believe Stellar is actually underappreciated, even among people familiar with crypto."
Agora is a voting dApp that makes it possible for anyone who has contributed to a District to vote on issues related to that District.
The protocol is off-chain, and voting works with just sending a signature.
What I particularly like is that it's a kind of staking mechanic, but related to real-world (or virtual-world, in this case) use of the platform. So your vote will have a bigger weight if you've contributed a lot of LAND to a district.
Blockstream has unveiled (or rather explained) their Issued Assets technology that's available on Liquid - their Bitcoin sidechain.
On Liquid, you can now create Issued Assets, which are basically tokens representing any type of asset.
It's very cool to see the ETH-like token concept getting (close) to the Bitcoin chain, but we won't really be blown away by such efforts until they can actually verify the link between the offline asset and the online token.
The decentralized app future is getting closer and closer and the decentralized dev tools ecosystem is growing by the day.
DappNode is a suite of code that enables you to easily spin up full nodes of protocols and deploy Dapps. For example you can deploy Metamask and not have to rely on Infura's servers - or deploy your own MyCrypto so to not have to worry about phishing attacks as well as having to trust the MyCrypto team.
They are also launching DAppNodePackages (DNPs) bringing some Docker-juice to dapp developers.
Brandon from Gemini put together a rather depressing list of the increasingly popular ETH phishing scams happening on Twitter and elsewhere, including amount scammed and most recent victim.
The total is a whopping $23M (though I suspect a portion of that is faked to trick users), with fake MEW/MyCryptos sites topping the list at >$7.5M. Here's a more detailed analysis. Hopefully this gets Twitter to do something about it.
As a result, the MyCrypto announced they will end support of private keys on the web version of its product.
Loom Network announced a Plasma Cash implementation for ERC721 Tokens (which is simpler, given that NFTs have less requirements).
It's a normal Plasma setup with a contract on mainnet and one on the sidechain that interact.
In order to use an ERC721 token on the sidechain, the user first sends their token to the Plasma contract. The balance is then updated on the sidechain and the user can interact with the token there and send it to other users.
At any time, the user can request to exit the sidechain and have the token reflected on his mainnet contract balance.
Some cool things hidden in the post are the concepts of: - Liquidity Providers - Delegated Exits and Watchtowers which are designed to help improve the UX of Plasma contracts for average users that don't really want to wait for the challenge period and also don't want to monitor the contract constantly to challenge invalid exit requests.
tZERO announced the signing of LOI with Hong Kong based VC fund GSR Capital to the tune of $160M, as part of its ongoing security token offering. The announcement was wildly advertised via promoted tweets and instagram ads, presumably as a way to maximize proceeds from the sale that got extended to August. As a reminder, tZERO tokens will give holders rights to 10% of the platform's gross revenue.
This raise would double the amount it's already got in the coffers, exceeding their initial $250M target.
It's somewhat ironic that access to traditional banking services is a major bottleneck for crypto projects, but that's till the reality in most jurisdictions as costs and taxes are still priced in fiat.
Switzerland, which dubbed itself as crypto nation, and the Zug canton in particular are pushing really hard to keep up to speed with Malta and Singapore by working closely with banks to remove those friction points.
A very harsh take by the Bank Of Finland on crypto currencies, ironically written by its "Adviser on Digitalization and Head of the Digital Central Bank process". But good to read unpopular opinions too.
To give you a flavour:
"The analysis shows that the concept of a digital currency is a fallacy. Currency, in the form of coins and banknotes, can be viewed as a physical representation of a monetary unit of account. Currency cannot be digitised, as this would inevitably mean creating a financial record keeping system based on accounts. Cryptocurrencies are not currencies at all but accounting systems for non-existent assets."
PS: which such divergent views across the continent, it's hard to imagine a harmonised approach from regulators across Europe coming anytime soon. But we can hope! 👇
The report is very balanced overall, shows a more than decent understanding of blockchain technology and of the rationale for virtual currencies to exist, while at the same time being pragmatic about their potential limitations in replacing sovereign currencies. It also urges for a harmonised effort to regulation given the global nature of virtual currencies.
Importantly it demonstrates how, with some exceptions (👆 & 👇), the majority of government institutions are now entering the phase of realization that this is not just a fad that will go away, with paragraphs like this one looking directly addressed to the Roubinis of the world:
"The economists who attempt to dismiss the justifications for and importance of VCs [virtual currencies], considering them as the inventions of “quacks and cranks” (Skidelsky, 2018), a new incarnation of monetary utopia or mania (Shiller, 2018), fraud, or simply as a convenient instrument for money laundering, are mistaken. VCs respond to real market demand and, most likely, will remain with us for a while."
Quite the opposite is happening in India, where the central bank’s directive from back in April, prohibiting financial institutions from providing any services related to virtual currencies, has failed to be overturned by the Supreme Court. India is effectively turning the fiat on and off-ramp taps off.
A rather backward-looking, medieval stance:
"the central bank told the top court that Bitcoins cannot be treated as currency under India’s existing law that mandates coins to be made of metal or exist in physical form and stamped by the government."