📌 An opinionated recap of the most interesting news in crypto
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Over the last couple of days a weird Twitter hashtag exploded right into our feeds (reminding us that we are long overdue for a refresh of our followings). If you are on Twitter and follow this space you wouldn't have missed it. We don't even have the energy to comment on the specifics, frankly we find it amazing that so many people don't have anything better to do with their time than getting so animated about such things. I would single out one extract from a tweet though that perfectly captures our sentiment about this:
“How is any of this productive? Great opportunity to signal that you're a card carrying member of your tribe though!”
So, onwards with the issue. Some drama as usual, the big news of the Augur main net launch and an interesting thesis on a recent Bitmain investment. First though, a selection of thoughtful posts we've read this week.
Great read outlining the perspective of a core developer on the Ethereum governance processes, but more generally on what it means to work on base layer technology on a day to day basis and how to get started.
Spoiler: it's not glamorous.
"You’re building extremely low-level infrastructure that the average person will never notice nor understand. (Good luck explaining to your parents and friends what you actually do.) The pay kinda sucks, other people will get rich and famous on the back of your work, you likely won’t receive any credit, and you kind of have to be okay with that."
Speaking of building infrastructure, Kyle of Multicoin published an excellent cross-sectional snapshot of the current Web3 stack.
Handy to map activity in the space (so much going on!), but mostly to get the pulse of where we are in the road to usable consumer scale dapps: beyond fervent development activity (and capital deployment) happening at the core stack of base-layer chains, mostly on consensus and state transition machine layers, other parts of the stack are still immature and rarely in production at meaningful scale. It's almost a miracle that we already have some live dapps out in the wild!
Overall though, it's truly amazing to see all the dapp tooling coming together from the collaborative effort of a multitude of development teams. The stars are aligning.
"Like many other technologies, the Web3 stack will progress slowly, and then quickly after surpassing some tipping point.
The dapp revolution will happen shortly after the Web3 stack achieves some level of usability, stability, and feature-completeness. I suspect this is 2-3 years out."
Aleksandr's posts are always a healthy dose of BS-free realism.
With the caveat that he's ultimately making an argument for his new project Adapt, in this post Aleksandr advocates for more agile experimentation and testing in developing decentralized systems, at the cost of compromising on decentralization itself in the early days. If you thought lean startup methodologies made sense, a similar approach should be even more warranted in a nascent and unchartered area like decentralized tech where playbooks are far from established.
Really interesting read on the implications of the Lightning Network for the emergence of a bitcoin capital market.
The author argues that, with improvements in UX, security and infrastructure behind LN, a capital market will emerge where rational investors can make trade-offs between risk and reward, just like in the fiat world. With the unique difference though that the LN will enable earning an incremental return on staked bitcoin without taking additional counterparty risk.
"Bitcoin staked to Lightning is the most unique income producing asset in all of monetary history: income with zero counterparty risk. The historical implications of this on capital markets are tremendous."
Some think this will enable a fractional reserve banking model on top of bitcoin.
Pierre Rochard outlines how the Bitcoin governance process works in practice, and whether its design optimizes for maintaining trustlessness or for increasing network value.
While the latter is impossible to prove given the price volatility, the former seems more plausible according to Pierre:
"If Bitcoin’s governance model had not been resistant to last year’s miner signalling for a doubling the maximum block weight, a precedent would have been set of valuing transaction throughput above trustlessness."
The 4h installment of Bitcoin Magazine's Genesis Files series on Nick Szabo and Bit Gold is another must read and fascinating throwback to the origins and inventors of all this.
Probably nothing new if you've been down the rabbit hole for a while, but always a fascinating story nonetheless.
“Bit Gold would greatly benefit from a demonstration, an experimental market (with e.g. a trusted third party substituted for the complex security that would be needed for a real system). Anybody want to help me code one up?” (Szabo, 2008)
We've criticized Coinbase quite a lot with how they handled their Bitcoin Cash addition.
It's nice to see a change in things, and they are now making a public announcement about the next assets they're going to add (or "explore their addition"), doing it at the same time as their internal announcement.
"We are making this announcement internally at Coinbase and to the public at the same time to remain transparent with our customers about support for future assets."
Self-regulation in the industry keeps on growing, and we couldn't be happier.
There's two other interesting lesser noticed points in the post:
- Coinbase will probably only allow deposits and withdrawals from transparent Zcash addresses. We're not yet at the point where privacy coins can enter the mainstream fiat onramps.
- Many coins might see foreign listings before coming to the US.
Why Cardano though, that's beyond us. Perhaps only to make this work:
Manu Kumar over at K9 predicts that "In the near future, we will see three types of companies: a privately-held company, a privately-traded company (which have high valuations and an active secondary market), and a public companies."
We find this fits greatly with our exploration of new organization types as well as the token/security-token and ICO debates.
We're definitely seeing experimentation around the lines that Manu describes in his post.
The post in the headline is a constructive analysis of what happened and learnings from it. In short, a security backdoor (identified and object of a heated debate about a year ago) backfired as an 'admin' wallet with special permissions was compromised and therefore able to withdraw from a BNT's connector and from other Bancor smart contracts (though not from user wallets). It's yet unclear how that happened at the time of writing, though it's probably just down to weak PK management practices.
This was one of Udi's remarks back then: "The keys held by the team could be stolen for example."
To which Bancor's team responded: "This is quite far fetched, as we’re using industry best practice multi-sig contracts, on offline wallets, where the different keys are password encrypted and are never stored in proximity to each other. We take security extremely seriously and have spent much of our energy leading up to the TGE on carefully planning a redundant strategy with no single points of failure."
Oh well, not that far fetched after all. Damage: 25K ETH was stolen, as well as 3.2M BNT and change.
The other thing that caused some upheaval is that the Bancor team hit the 'kill switch' to freeze and recover the stolen BNT, another feature that was built in the protocol as an extra security measure to face situations like this one for up to 3 years from launch. The Twitter crowd went mad screaming along the lines of 'so much for decentralization', though to be fair Bancor did outline the existence of this feature in their response to Udi's post:
"This is one of the security switches we created. If an exploit is detected, this switch will allow us to pause transfers, publish the findings, upgrade the contract and potentially recover stolen funds".
And according to their post-mortem they claim it was also"transparently communicated to the world at large and heavily discussed prior to Bancor’s token sale".
Leaving aside obvious warnings about opsec practices and merits of centralized security measures (they are quite common btw), this unfortunate event brings up for the Nth time the desperate need for proactive and radical transparency. Decentralization is a highly complex and nuanced topic that can't be filed under black or white (and its 'sufficiency', for lack of a greyer term, may have regulatory implications too). So if a project like Bancor, whose team claims to have been widely open about their security design since the early days and that was subject to a thorough and public review, still ends up confusing the hell out of a large part of the community when it's time to implement its functions, perhaps there's still a lot more work to do on the transparency and education front.
This week MyEtherWallet suffered a major security breach as a popular free browser extension VPN service called Hola (50M users) was hacked and users who interacted with MEW during a 5 hours window had their PKs exposed.
It turns out Hola's Google account was compromised by an attacker who pushed an update containing malicious code (since browser extensions auto-update, users didn't notice).
Opera have launched in private beta a new browser version for Android with a built-in crypto wallet.
Last week's rumours of Bitmain's $50M investment start to make a little more sense now, with a fascinating theory on one possible rationale: tl;dr African consumers first internet experience is on Chinese manufactured phones with a pre-installed Opera browser.
Opera has a relatively small market share of the mobile browser market, hovering around 4.5%, so this could also be a wild bet to position at the forefront of the dapp revolution before the big browsers make a move (i.e. evolve or die). Still, that's a few hundred million users armed up with a crypto wallet, and potentially an important on-ramp in 3rd world countries, so no small feat.
It will be interesting to see what the big browsers will do in this space.
In other news:
- Congested. Gwei has shot up to >140 as the Ethereum network is being heavily spammed by an apparently useless token called IFishYunYu. There's a conspiracy theory already.
- *Hedl. South Korean central bank reported that national banks held almost $2B in crypto currencies back in December 2017. Small number, but important data point.
- Getting Antsy. World's most valuable fintech company Ant Financial, fka Alipay, is actively exploring applications of the blockchain to improve data privacy and security in its core business.
- What? Tokenpay and the Litecoin Foundation partnered up to buy a stake in tiny German bank. Here's why and why the plan might be flawed. 🤷
- Exchanges #1. Binance is also making moves into conventional banking by funding the set up of a "community-owned bank" in Malta, with a plan totokenize its equity via Neufund (big win for them!). At the same time Malta is being accused by the EBA of "failing to enforce EU money-laundering rules".
- Exchanges #2: OKCoin launches in the US (to Californian residents only) with fiat on/off-ramps.
- Scary. Kidnappings and robberies of crypto traders and owners are on the rise across the world. Stay safe out there.
- Barry. Some incredible numbers on Digital Currency Group (most shocking: only 9 FTEs!) and a reminder of how they got there. Amazing story.
- Missed the boat? The cool place to be at last week was Branson's Blockchain Summit in Marrakesh. There, Sergey Brin admitted that Google has failed to be on the bleeding edge of blockchain, while also revealing that he's been mining Ether.
- Stressful jobs. Tether appoints former AML quality control manager at Bank of Montreal as its Chief Compliance Officer.
- Tokenizing equity. UK startup Nivaura continues to to do great work without the fanfare. They are now working with the LSE and FCA on tokenizing and issuing the equity of a UK company in a fully-compliant way.
- NFTs. Major League Baseball digital collectibles are coming to the Ethereum blockchain.
- DCleaks. Bitcoin was used by 12 Russian military intelligence officers to fund the infrastructure required to meddle in the 2016 presidential election, according to an indictment just released by special counsel Robert Mueller.
- Traction #1. Brave browser crosses 3M MAUs (more than doubled since February). TE is one of 18K verified publishers.
- Traction #2. The Lightning Network's capacity has shot up recently, but it turns out that a single node controls over half of it. It's Andreas Brekken of Shitcoin.com.
Augur has finally launched on Ethereum main net. 🙌
It's certainly notready for prime time yet, and it took longer than expected due to many unforeseen complexities along the way (3 years from ICO), but it's LIVE and it (sort of) works too, so let's just celebrate a landmark moment: we have a first live version of a decentralized protocol for prediction markets.
At time of writing there's already ~$225K across ~40+ markets with money at stake (out of 270+ created in total). Some very interesting use cases are already emerging, like Medcredits creating a market on their ability to hit milestones.
We have not had a chance to give it a spin yet, and it sounds like one needs to carve out a good few hours and set aside a fat dose of patience to do that (if you have 15-20' though we reccommend watching the first part of this thorough video review from Openbazaar's founder Brian). But it's exciting to see it out there in the wild and the experience will no doubt improve dramatically over the next few weeks with the feedback from the community and with 3rd parties starting to build and optimize front-ends on top of it. A new version is already out with lots of bug fixes. Onwards!
The Graph has unveiled more details about their decentralized query protocol for blockchains, after coming out of the wood with it about a month ago.
This is yet another core piece of the Web3 stack that will make developers lives significantly easier by allowing them to retrieve and consume organized data from the Ethereum blockchain or IPFS directly into their dApps, instead of having to build their own indexing infrastructure.
The idea is that this happens on a decentralized network of indexing nodes contributing work, that can be queried using GraphQL, as opposed to over a centralized indexing server.
As anticipated, MyCrypto has finally launched its desktop app, with support for Ledger and Trezor.
Also private keys have now been deprecated on the website.
-------------------------------------------------------- 🔊Any 'token researcher' out there interested in working on designing the crypto economics and incentive structure for a new protocol? Reach out to us at <hodl at tokeneconomy dot co> for more details and we'll connect you if there's a match. --------------------------------------------------------
The first cheque from A16Zcrypto goes into the pre-sale for Oasis Labs, another smart contract platform that claims to be improving over existing ones on scalability and privacy, founded by a CS professor at UC Berkeley. Alongside them, the usual long list of investors: Accel, Binance, Pantera, Polychain, Metastable, Foundation Capital, Electric Capital, DCVC and Fred Ehrsam.
There's a good overview of it on the MIT Technology Review blog, highlighting Oasis key differentiator:
"Contracts will run inside an isolated piece of hardware called a secure enclave. The enclave acts like a black box, keeping the computation private from a computer’s other applications, its operating system, and its owner. It also generates cryptographic proof that the programs were executed correctly—and that proof goes on the blockchain. Separating contract execution from consensus “enables these different layers to scale independently,”"
Usual long list of co-investors: General Catalyst, Greylock Partners, Lightspeed Venture Partners, Pantera Capital, Digital Currency Group, SV Angel, HustleFund, Village Global, #Angels, Elad Gil, Fred Ehrsam, Linda Xie, and others
DIRT is building a protocol to build TCRs around information curation, kind of a platform to build Wikipedias where curators need to stake in order to contribute.
Curious to see this in action and whether it's something Token Economy can one day adopt.
A good read from Michael Casey on the current global regulatory landscape for utility tokens.
The key warning he's making is that the tension between the "forward thinking" nations and the more cautious ones, and the potential failure to harmonize legislation, could end up creating dangerous regulatory arbitrage opportunities and unwanted side-effects:
"When a technology is as geography-agnostic as this, its users will often choose their home base depending on where regulation is lightest, stoking competition among jurisdictions. Given the inordinate number of scammers in the ICO business, the danger is that the worst players gain too much freedom and, by extension, too much influence over how this industry is broadly perceived."