Crescent Talks Crypto



Weekly Newsletter

04/24/2018 - 04/30/2018


Market Recap: Winners & Losers

Crypto assets gained slightly more than 7% over the last week, adding nearly $30 billion, bringing the market's total value to ~$429 billion. Among assets with at least $100 million in market cap, Bottos (BTO), Ontology (ONT) and Aelf (ELF) were the largest gainers while Bitcoin Private (BTCP) was the crypto most in the red within this market cap threshold, down 24%, according to data complied by Coinmarketcap. 6 of the top 10 current largest crypto assets posted gains over the last seven days, led by Tron (TRN), EOS and Cardano (ADA) while Bitcoin Cash (BCH), IOTA and Ripple (XRP) saw the largest declines. 



batchOverflow Bug In Ethereum Smart Contracts Causes Panic


Source: Smartereum

What happened?

Last week, blockchain security startup PeckShield identified an issue across several Ethereum smart contracts (based on the ERC20 protocol). Basically the “batchOverflow” bug would allow “an attacker to possess a huge amount of tokens by exploiting these vulnerable contracts”. This means that an attacker could essentially transfer a massive amount of tokens to an address with zero balance which subsequently forced the sender to pay a huge amount in fees. Initially, the market seemed to overreact with many investors suspecting this was a flaw across all ERC20 tokens. While this was not the case, the bug seemed to be present in quite a few projects. One of which, Smartmesh (SMT), saw its token balance and token value run to over 30 figures due to the attack. In response to this vulnerability, crypto exchanges like Okex and Huobi immediately suspended ERC20 token trading for a short period of time. Eventually, the community came together and developers were able to clear up that the faulty function outlined by PeckShield was not even present in the ERC20 standard and rather an instance of poor Solidity development.

Why does this matter?

The crypto space is still new and growing every day. While flaws and issues are expected to be identified during the process of building out these projects, researchers claimed they had found at least 30,000 Ethereum smart contracts that were vulnerable to bugs just a few months ago. Bugs like this one really help put into perspective the massive network Ethereum has already established as the #1 platform within the space as well as question whether or not it will be able to hold onto this spot with next generation blockchains working towards creating a more secure network. While PeckShield pointed out that Ethereum already had tools in place to help protect against such events, there are already third generation blockchain projects like EOS and RChain which are working towards a “correct-by-construction” approach.

What’s the word on the street?

Given the crypto markets are global and run 24/7 365, the news immediately led to a sell off with Bitcoin falling below $9,000 and Ethereum falling below $600. Fortunately, developers were able to comfort the market after pointing out that the “batchTransfer isn’t a standard ERC20 function so only the contract owners which chose to implement it could be effected”. While the market seemed to start recovering after this message reached a wider audience, this event has caused teams to take a hard look at their code as well as consider having their smart contracts audited more thoroughly. Quantstamp (QSP), a project which is developing a protocol that audits smart contracts using formal verification in order to find bugs before contracts are published to the blockchain, released a statement where they pointed out how important it was to check for potential exploits to ultimately help make the Ethereum ecosystem more secure. To lead as example, Quantstamp reached out to the affected tokens and their relevant exchanges to assist at cost.

Consensus 2018 Conference Boycott Gains Steam


Source: Smartereum

What happened?

Vitalik Buterin, co-founder of Ethereum, tweeted he would not be attending the Consensus 2018 conference because of controversial coverage by the crypto news outlet, Coindesk, who hosts the annual event. An article published earlier this week discussing an OmiseGo airdrop included a link to a fraudulent giveaway scam, providing the catalyst for Vitalik's comments on the boycott. 

In the thread, Vitalik lists a few other reasons for his absence, notably Coindesk's coverage of EIP 999, the inability to speak "off the record" unless a journalist approves of such request, and the price tag to attend the event, stating, "I refuse to personally contribute to that level of rent seeking."

Why does this matter?

Losing Vitalik for a keynote conference is one thing, but the expert's comments rippled through the crypto community as more prominent members followed suit. Charles Hoskinson, a co-founder of Ethereum and founder of IOHK, responded to Buterin's tweet, disclosing he would also be skipping this year's event.

OmiseGo, the subject of the Coindesk article, tweeted out their decision to boycott the conference, adding more fuel to this growing movement. With the Consensus conference two weeks away, we may see more industry leaders bow out in support of the boycott as attendance may be viewed as support for a corrupt cause.

What’s the word on the street?

One editorial mistake turned into a PR nightmare for Coindesk, which is often regarded as a primary resource for many in the crypto community. Credibility is the most important asset a news outlet has. Without it, stories are just words on a page. It is unlikely Coindesk's readership base drops off a cliff, but its reputation has certainly taken a hit. Vitalik warned of this several weeks ago as crypto news becomes more prevalent. Others in the crypto community have come out in defense of Coindesk as well. A commitment to stronger editorial practices will go a long way for Coindesk to remain among the industry's top informational resources.


Ethereum Community Votes No to EIP 999, Problem Still Remains


What happened?

As a follow up to last week's piece, the Ethereum community has voted not to implement EIP 999 which would have recovered ~500k ETH of frozen funds held within Parity's multi-sig wallet. ~4 million ETH casted their vote in the poll, with those in favor of the proposal only receiving 39.4% of the vote. After the poll results were finalized, Gavin Wood, an Ethereum Co-Founder, Parity Founder and affected party (his Polkadot project has ~300k ETH frozen), issued a statement clarifying that they don't intend to split the blockchain over the issue.

Why does this matter?

Attempting to recover these funds has been an ongoing debate for months, and risks further dividing the community over how to fix the problem, if the problem should be fixed at all. The primary concern is that this issue leads to a contentious hard fork, and Ethereum splits into two separate chains as a result. This would be similar to the ETH/ETC split that occurred following the DAO hack. A contentious hard fork is a scenario that no stakeholder in Ethereum should hope for, and if Parity developers were to move forward with one the effects to not only Ethereum, but also the projects built on top of it, could be substantial.

What’s the word on the street?

While the poll results clearly show that a majority of voters were against EIP 999, only a small subset of the overall community took part in the vote. The issue is far from settled, and Parity developers have a lot at stake in finding a fix to recover those funds. Based on the statement issued by Gavin Wood, it doesn’t appear that a blockchain split is imminent, but it will be important to watch if their language changes in the future. Will Parity developers determine that recovering the lost funds is worth the potential fallout? While they may one day recover the frozen ETH through a contested fork, they would be damaging the very network they’re designed to service, and would most likely lead to a scenario where both chains lose value as a result. 


Regulatory Update



The government of Taiwan announced this week the roll out of new regulation later this year. Speaking at an anti-money laundering (AML) conference Chiu Tai-san, Taiwan’s Minister of Justice, said that the country would implement a framework for regulating cryptocurrencies by November, according to the Asia Times. Like regulation in South Korea and Japan, the framework will seek to prevent cryptocurrencies from becoming instruments for money laundering. The conference was held by the Financial Services Coalition (FSC) and featured central bank representatives as well as government ministers. FSC chairman Wellington Koo noted that the central issue around cryptocurrencies is the lack of clarity behind who bought and sold specific amounts. Though details are still scarce on how the FSC would track cryptocurrency transfers they did note that trading platforms would be required to mark all accounts as high risk. This flags accounts associated with large transactions. Investors should take this news positively as Taiwan joins Japan and South Korea (and not China and India) in creating regulation that is not too burdensome for investors and innovators in digital assets industry. 

The high-tax nation of France made a surprise move this week by announcingthat they would tax Bitcoin as ‘moveable property’ effectively changing the rate from 45% to 19%. Mining will not be a part of this flat rate and will be taxed as industrial and commercial profits. France, like many other developed nations with active capital markets, has been working on cryptocurrency regulations this year. While this tax rule is undoubtedly positive for Bitcoin hodlers, it is unclear where France stands on regulation. Earlier this year the government both bannedinvestment companies from trading cryptocurrencies and proposed draft legislation to encourage initial coin offerings (ICOs). 

The US House of Representatives Committee on Appropriations held a hearing with SEC chairman Jay Clayton on April 26th on cryptocurrency regulation. There were several highlights worth mentioning like Congressman Chris Stewart (R-UT) revealing that his son invested $17 in a digital currency and now has a greater net worth than he does. Chairman Clayton also reiterated that Bitcoin has “been determined by most people not to be a security” while also stating that for tokens “There are none that I’ve seen that aren’t securities”. Rep. Stewart also indicated that while there is a need for greater regulation that it would be imprudent to rush into passing legislation as Congress has done in the past. This reinforces the idea that the scope of regulators and lawmakers remains broad but nuanced. Additionally, the fact that a congressional oversight committee is also hesitant to take a scorched earth approach in terms of regulation should be taken as a positive sign.


Anything Else?

Screen Shot 2018-05-10 at 11.02.04 PM.png

On Thursday last week, approximately 16,000 Bitcoin (BTC) and Bitcoin Cash (BCH) were moved from the Mt. Gox’s trustee’s wallet to another wallet’s address. This caused many people to speculate whether or not the estate’s trustee was preparing to liquidate more coins. As we pointed out in one of our previous newsletters, the trustee received a lot of backlash when he revealed he sold over $400 million in BTC and BCH to cover the exchange’s JPY liabilities. It will be important to watch what happens with these 16,000 Bitcoin and Bitcoin Cash, currently valued at $140 million and $21 million respectively.

Meanwhile, the 17 millionth Bitcoin was mined last week. Only 21 million Bitcoin can ever be created, so this means there are only 4 million Bitcoin left to be mined. However, every 210,000 blocks the network reduces the block reward by 50%. So despite the first 17 million Bitcoin being mined within the last 9 years, the final Bitcoin won’t be mined till around 2140. That being said, this is certainly a milestone and helps put into perspective the limited supply Bitcoin has.








Anil Lulla