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We loved Derek's informative research piece on the increasingly pressing challenge facing all public PoW blockchains: fighting or embracing ASICs.

His conclusion is that the constant cat and mouse game between developers and manufacturers ain't worth it, and that ASIC-friendly algorithms instead will ultimately drive the market to correct itself through commoditization and margin erosion.

Just after this post was published, Monero forked, with all of its consequences - and apparently the hash rate went down about 80%.

PS: if you are a student (like Derek) and want to give your research a platform to reach more people, write to us.
Since John Pfeffer published his seminal paper back in December, no one has been able to construct a solid, defensible argument to dispute his conclusions. John left very little chances for utility cryptoassets to accrue enough value at equilibrium to justify current valuations, aside from maybe skin-in-the-game coins (h/t Twobitidiot) and unknown unknowns.

In this much shorter piece, John has become perhaps even more bearish than he originally was. His core view is driven by the belief that:

"if a cryptoasset isn’t a dominant non-sovereign monetary store of value (“SoV”), it’s somebody’s working capital"

which essentially equates utility tokens to assets that rational economic agents will seek to minimize on their balance sheet and just acquire the very instant they need to spend them (i.e. high velocity that no artificial sink can slow, spiralling network value down).

In that world, the native utility currency would no longer have a reason to exist and networks would have rely on charging fees in non-native currencies (e.g. BTC or fiat) to remain secure.
Speaking of which.

This is an excellent post illustrating the taxonomy of various token models and how value accretion works for each.

The author closes with some thought-provoking views on moats for crypto assets:

"To succeed is to survive. No differentiation is permanent, unforkable or un-matchable.
There’s no more moat and piranhas to hide behind. Value capture is not going to show up in the X-ray of a product’s life cycle, but rather be modelled at protocol level. Investors should pursue assets that accrue the most value, and learn how to capture this value themselves. Or, on a deeper level, understand which agents are going to capture this value in new market configurations, and invest directly on them".
About moats.

Early Bitcoin developer (and now venture partner at Blockchain Capital) Jimmy Song published an ode to Bitcoin, highlighting why it will be tough for the wave of altcoins and ICOs to displace it.

+ network effects
"Bitcoin, in a sense, has the world’s richest bug bounty to reveal any security flaws. As a result, Bitcoin has proven its security with the only thing that can really test it: time. Every other coin is much younger and/or has proven to be less secure."

+ decentralization.
"...there’s no single point of failure. Bitcoin has a system where even if a whole group of developers got hit by a bus, there are multiple open source implementations that can continue to offer choices to every user. In Bitcoin, you are sovereign over your own bitcoins."

A fairly obvious post, but probably a needed one, and surely one to send to all of the "Bitcoin is dead, X has Y and Z and is much better than Bitcoin" people.
If like us you are constantly bombarded by the most random airdrops on Earn.com, you've probably wondered what the whole point of them actually is.

This post highlights a number of important and yet unanswered questions about the optimal design of token airdrops, an increasingly popular tool in the arsenal of crypto projects that is supposedly aimed at bootstrapping network adoption and potentially dealing with inter-protocol governance. 

Lots of experimentation happening on this front and no hard data yet on what works.
If you've been hearing about Cosmos (and Tendermint) quite a lot, but have no idea how they work, this is probably the easiest explanation that we've seen around.

With it you can learn what Tendermint is (effectively a way to roll-your-own blockchain with Tendermint consensus), and what Cosmos Hubs, Zones and Peg-zones are.

Concepts like Cosmos (and Polkadot obviously) are, in our view, core to the development of the space, as it's unrealistic to imagine users and apps interact with hundreds of different tokens and chains.
An introductory piece comparing two DAG-based technology implementations are challenging the existing blockchains: IOTA and Hashgraph.

Spoiler: they are very different despite often being thrown in the same bucket.
For those following Ripple, just skip the main article and just read Ryan Selkis' excellent take down on its Daily Bit: I Still See You, XRP.
Vitalik was on a roll this week.

He live tweeted comments from the "Bitcoin, Controversy over Principle" session at the Deconomy conference, featuring Bitcoin.com CEO Roger Ver, Blockstream CSO Samson Mow and nChain Chief Scientist Craig Wright.

You must have all read it already, if not the link aggregates his 62 tweets. It's excellent.

He then closed standing up and calling Craig Wright a fraud. 👏

Bonus: unrelated, but he also blasted Justin Sun, who claimed Tron is better than Ethereum. 😂
Another traditional venture fund goes crypto. 

Unlike others though, Venrock are doing it via a "strategic partnership" with some of the best in the game (the folks at Coinfund), with David Pakman taking the lead for the fund. 

The post is a missive on what has driven him to focus his attention on crypto.
Easy come easy go. Everyone's a genius in a bull market.

Both equally appropriate to describe the early innings of deflation in the euphoria that brought to market 200+ crypto hedge funds towards the end of last year.

When there's blood in the streets though, the pros tend to step in. Apparently George Soros family offices is ready to pull the trigger on crypto assets, but we are not sure which way (after all he broke a currency before). 
If you are wondering why prices have been crashing down to earth since the January highs, Chris and Jonathan have a theory backed up by some data: $14-29B of tax selling related fiat outflow (more than the entire network value as on Jan 1st 2017), amplified by a 20-42x multiplier, caused a near $600B drop in aggregate market cap.

The cause of the amplifier, that was experienced on the way up by a similar order of magnitude, is the reflexivity of the asset class at this stage of maturity and development, i.e. the tendency of prices to become a fundamental driver. 

We should expect this effect to dilute over time.
And to finish, a wildly pessimistic take on all of this movement from the CEO of True Link Financial, with some points that help ground us to reality.

For us, we're still on the believers train, and think that sound money and smart contracts are going to change the world is a hard-to-fathom way, even for the non believers.

Still, required reading.
😎 Cool new projects
So, Bancor's actually shipping.

I must admit that I gave Bancor a lot of shit, mostly because of their (at the time) insane ICO - but I've been impressed with the execution.

What they've built is a super interesting alternative to decentralized exchanges.

In Bancor, you're exchanging a token not against other traders, but against autonomous market-making smart contracts that hold token balances to provide liquidity and algorithmically calculate the prices.

Token developers can make their tokens "Smart Tokens" or "Token Relay" and make it compatible with the network (thus listing it on this new Bancor Wallet).
Carbon is yet another stablecoin effort, and is very similar to Basecoin and Fragments.

You can think of Carbon as a Basecoin without the rent-seeking investor token (almost propelling us to a future where all rent-seeking parts of decentralized networks will just be forked away and removed, but that's for another post).

The downside is that it's not entirely clear if people will want to burn their tokens to get the bonds instead of just selling the tokens on the market (so removing the potential for a greater gain but also not holding the risk that the tokens will go down to an unrecoverable low).

The interesting thing here is that it's one of the first SV-funded companies to go with Hashgraph as their base platform. From the post, it seems they chose it for its price, speed and security.
Nifty dev tool to help you add support for both Metamask and Ledger in Ethereum dApps.
A new proposal for a token standard based on the barter system went up.

The idea is to create an interface to make non-fungible tokens more fungible, opening up all sorts of interesting opportunities like allowing the exchange of divisible units of ERC721 tokens (representing a specific asset for example), as long buyer and seller agree on a value assignment mechanism.
🤡 ICO madness
I have a love hate relationship with regulations, but this time it is love.

Every time I came across the "How Floyd Mayweather Helped Two
Young Guys From Miami Get Rich
" article I got extremely depressed. 
Not that this news changes much, we're still in a market fraught with scams and criminals that are raising money from either dumb or ruthlessly unethical investors (who are ok with making scammers rich for a small chance at making some money).

And really Centra was just one of the most obvious total scams. There are so many more that did a better job at at least looking legit and not pissing off Mastercard and Visa who will run away with the cash and never see jail.

If you have any suggestions on how to cope with this knowledge, it's all welcome.
The National Venture Capital Association (NVCA) has put a new clause in their standard documents, making it so "to provide investors a veto over token, cryptocurrency and blockchain related offerings,".

VCs are scared of ICOs both because it's a mechanism to bypass them, but probably more so because it creates a number of liabilities for their companies who decide to go that route.
Bitfinex continues to ignore the big audit question, and goes full steam.

They are adding quite a few new fiat pairs as well as adding British Pounds (GBP) and the Japanese Yen (JPY).

Not clear from the announcement it those will be Tether-based, but it's most likely.

Coindesk's article is good with quotes from a number of VCs.
👮 This week in regulation
Behind paywall, archive link here.

Quite a week for Coinbase! (there is more below)

A week after announcing the support of ERC20 tokens, it's been reported that Coinbase is trying to register with the SEC as a licensed brokerage firm and electronic-trading venue. That would allow it to only list crypto assets that comply with securities law (the bet being that most projects will go down that avenue), at the cost of increased scrutiny:

"The SEC can examine broker-dealers for compliance with the extensive array of rules that brokers face. SEC examiners could comb through the company’s trading records, the systems its uses to protect customers from cybersecurity threats, as well as its policies for defending against insider trading and market manipulation."
A softening of the tone on crypto regulation was definitely sensed from Jay Clayton's speech at Princeton this week.

His "absolutely not" in response to a question on whether all ICOs are frauds has a different feel compared to his previous "every ICO I've seen" is a security. The underlying stance is still the same though: bullish on the underlying technology, ruthless on the fraudsters may end up attracting regulatory actions "so severe that they will restrict the capacity of this new security."

The most interesting part was when Clayton touched on utility tokens, opening up to an evolving definition of "utility" and "security".

"Just because it's a security today doesn't mean it'll be a security tomorrow, and vice-versa."

This statement is somewhat reminiscent of the ideas underlying the SAFT, a framework that the SEC originally seemed critical of but now appears to be more open to.
Japan continues with a friendly yet sturdy stance on crypto, unlike its neighbouring countries.

A government-backed research group has put forward some guidelines aimed at giving regulatory definition and approval to ICOs.
Not too far from Japan, four people, including the CEOs of cryptocurrency exchanges Coinnest and one other yet unnamed, as well as two senior executives, have been arrested and charged with embezzlement, fraud and violation of commercial law.

Apparently the have been diverting the equivalent of hundreds of million dollars of users funds into their own pockets.

Coinnest is backed, amongst others, by Bitmain.
A bit further to the west, the Reserve Bank of India has simultaneously announced its intent to introduce a 'central bank digital currency' and extended a ban to the Indian banking system from serving individuals or businesses dealing with or settling virtual currencies.
💰 New funds
Here we go, that time of the cycle when corporate venture funds sound like a brilliant ideas.

Not many details in the announcement, other than the focus being on "building strong relationships and helping to spur on the development of the ecosystem", without a view to partner in any way, and on deploying capital in the 'Coinbase Mafia' alumni network (the latter being something Paypal probably regrets not having done, with a dose of survivorship bias). 
💸 Funding rounds
The bitcoin and bitcoin cash payment processor for merchants has closed a $40M Series B round led by Aquiline Technology Growth and with participation from Menlo Ventures. The round closed at $10M more that what the company set out to raise in December.

The pressure is up among traditional venture firms to get a piece of the crypto pie.

The business is on an annual run rate of processing c. $2 billion in crypto payments, which is a very decent $20M revenue run rate.
Chainalysis, the NYC-based blockchain forensic startup, announced their Series A funding round, led by Benchmark’s Sarah Tavel.

Demand for its services has grown in the last few months as more and more banks and exchanges have reached out to them looking for help on compliance and risk management.

They've been monitoring only Bitcoin to date and telling law agencies everything about you, and now they'll get to work on monitoring other chains, most likely Ethereum and Litecoin - with a goal of getting to 12.

The company is profitable and grew revenues 3x last year, now at 70 employees.
Coinlist finally announced their funding.

It's being announced as a $9.2M round, but in reality it was structured as a $7.2M Series A from Accomplice (AngelList's main investor) and Protocol Labs (which helped the spin-out and developed the first version).

Now, Polychain, FBG, Libertus, Electric Capital, Blockchain Capital, CoinFund and Digital Currency Group have invested an additional $2M in the company.

As part of the next phase for the company, they've announced plans to launch a secondary exchange for blockchain-based securities. 

Our guess is that given the involvement of all these new investors, we will be seeing a Coinlist token very, very soon.
After closing its OTC trading service, Chinese bitcoin startup BitKan is looking to expand its business with $10M in a Series B round.

Now there's a KAN token coming. We're having a hard time understanding this one, apologies.
ℹ️ About us
Token Economy is written and curated by Stefano Bernardi and Yannick Roux.

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