Crescent Talks Crypto
CATCH UP ON CRYPTO IN 10 MINUTES OR LESS
05/08/2018 - 05/14/2018
Update From The Team
Welcome to the latest installment of Crescent Talks Crypto. We want to welcome our new subscribers and share some exciting news with you before discussing the most important crypto stories from over the past week. First, you'll notice a new format to the newsletter, which we hope you enjoy. Also, Crescent has a podcast now too! We encourage you to subscribe and listen on our new Soundcloud page. Lastly, we want to put the spotlight on our very own Chris Matta who was featured in a CNBC article over the weekend that has gone somewhat viral. Please keep the momentum going and share with your friends.
Day One of Consensus 2018
Yesterday was the start of CoinDesk's annual Consensus conference, which brings together thousands of blockchain developers, miners, and enthusiasts for three day nonstop crypto discussion. In case you weren't able to tune in, here are a few good summaries of what you missed. We also included a few things that jumped out to us, but we would love to hear your thoughts on how this conference is shaping up.
- St. Louis Fed President Jim Bullard gave a quick presentation on the rise of private currencies, echoing parallels to the 1930's when a large portion of the currency in the U.S. was privately issued by prominent banks. He noted the benefits of cryptocurrencies in the face of abusive monetary policy, citing Venezuela's current situation as a prime example. He sees the promise to limit the future issuance of a currency as a top risk, however this is a concept that hard forks have certainly challenged.
- Fred Smith, CEO of FedEx, stated blockchain-based payments are going to "change worldwide supply chains,". One of the biggest focuses for FedEx is integrating blockchain technology into their freight business given the high value per shipment.
- Catherine Wood, CEO of ARK Investment Management, joined an insightful panel on equity and coin investing, where she highlighted blockchain as one of their five "general purpose technology platforms evolving today." She sees regulators targeting fraud and illicit activity so as to not be blamed for inhibiting innovation.
- Kavita Gupta and Jalak Jobanputra discussed the opportunity for cryptoassets in emerging markets, notably in areas where smart phone penetration is connecting more users to financial services and other products in the digital economy.
- Muneed Ali from Blockstack spoke about the Internet 3.0, which features decentralized computing, the next evolution following PCs (Internet 1.0) and cloud computing (2.0).
- Charlie Lee, founder of Litecoin, sat in on a panel discussion surrounding interoperability. Lee does not believe one coin will come along to "rule them all", but he does believe there is room for coins to focus on different things. Also voiced his concern over security, as attack surfaces increase with interoperability, a key issue given even the most basic smart contracts are not as secure as some may think.
- Joseph Lubin challenged Jimmy Song to a Bitcoin bet following multiple claims by Song against today's blockchain use cases. The terms may be hashed out on Twitter, with Joseph the crypto bull in this battle.
- The day wrapped up with Dr. Whitfield Diffie, legendary cryptograper and Chief Scientist of Cryptic Labs, talking with Zooko Wilcox, the founder of privacy coin Zcash. Much of the conversation centered around Whitfield's experience in the field, and the influence he and his colleagues have had on the world of cryptoand encryption today. Whitfield turned heads when he commented, " In some sense you can't be a revolutionary force without eventually taking over the establishment".
Novogratz Partners with Bloomberg to Launch Crypto Index
Mike Novogratz partnered with Bloomberg to launch the Bloomberg Galaxy CryptoIndex (BGCI), a market-cap weighted index that’s designed to track the largest USD-traded cryptos. The 10 currencies in the index currently account for 75% of the total crypto market cap. This is largely attributed to the size of Bitcoin and Ethereum, however the index does have a 30% weighting cap on any individual coin which should help to better represent the rest of the market.
Why does this matter?
This is another prime example of a development in the space that should help materialize some of the institutional demand that is currently sidelined. The Global Product Manager for Bloomberg Indices stated “Today’s launch of the Bloomberg Galaxy Crypto Index reflects our clients’ growing interest in cryptocurrencies.”
When it comes to institutional investment, the importance of a benchmark cannot be understated. Benchmarks are fundamental to performance assessment and they help firms maintain their fiduciary duties to clients. There are currently a few crypto indices that exist, but they are all created by cryptocurrency focused firms. This is a first from a company that’s heavily rooted in traditional financial markets, and that has the experience to develop indices which can meet the standards of functioning as a benchmark. The creation of this index implies real demand for such a product, and it should also help to foster new interest in the space.
What’s the word on the street?
The reception to this news has been positive, but muted. Its implications will likely go unnoticed by most retail investors, because its impact is indirect. There are certain conditions that have to be met before institutional funds can comfortably invest on behalf of their clients, and having a quality benchmark is certainly one of them.
Entering The Ethereum: First Casper Update Has Been Released
Developers finally unveiled the release of Casper FFG (Friendly Finality Gadget) v0.1 code to GitHub last week, which is the first of two Casper implementations. Casper FFG will play an important role in Ethereum’s transition from Proof-of-Work (PoW) to Proof-of-Stake (PoS). While this specific update will not replace the PoW algorithm fully, it will be used for the regular validation of “checkpoints” and help the team utilize a hybrid mix of the algorithms to eventually transition to the second implementation, Casper the Friendly GHOST (the full PoS consensus algorithm). The core focus of this release is to allow clients, developers, and auditors to easily integrate the source code into their software for testing.
Why does this matter?
To understand why this is important, we need to take a step back and look at the issues with Ethereum’s current consensus algorithm, Proof-of-Work (PoW), as well as how Casper plans to solve these problems. BlockGeeksdoes a great job of breaking this down, but here is a brief overview.
Proof of Work, as a process, is when miners solve cryptographic puzzles to “mine” a block to add to the blockchain. Bitcoin and Ethereum both run on PoW at the moment. The main problems with PoW are: (a) the large amount of energy the algorithm consumes, and (b) wealthy mining pools can afford to purchase a large amount of specialized equipment, known as ASICs, which can improve their chances of mining a block and crowd out smaller miners. These issues can lead to increased centralization, which threatens the inherent distributed nature of the network.
Proof of Stake, on the other hand, eliminates the mining process, and replaces miners with "validators". In this consensus algorithm each validator posts collateral, referred to as "staking", in order to begin running the network and creating new blocks. When a validator discovers a block which they think will be added to the chain they validate it by betting their stake on it. If the block gets appended, then the validators will get a reward proportionate to their bets. One issue that Ethereum had to address regarding PoS was the “Nothing at Stake” problem, which you can read more about here.
This is where Casper the Friendly GHOST comes in. This version of Casper is the PoS protocol that Ethereum has chosen to implement. GHOST solves the “Nothing at Stake” problem by punishing malicious validators and having their stake slashed. In theory, GHOST will help Ethereum achieve further decentralization, solve energy efficiency issues, enhance economic security, and help solve ETH’s scaling issues. You can see why this is such a big step.
What’s the word on the street?
As more and more third generation platforms emerge and start releasing testnets, Ethereum is under pressure to solve its numerous issues. This release of Casper is definitely a step in the right direction, but it will be important to see how quickly the final upgrade can be implemented. While most of the market stayed flat, Ethereum inched closer to $800 after the release.
Bitcoin Cash Targets Larger Blocks with Hard Fork
Today, May 15th, the Bitcoin Cash network is planning a hard fork of its protocol, which will include an increase in the block size cap from 8MB to 32MB. This fork seems to be popular, as most developers and miners upgraded to the new software, called Bitcoin ABC 0.17.1, in preparation of the transition.
Why does this matter?
As many people know, Bitcoin Cash is a spawn of Bitcoin, created after network participants disagreed on the critically important issue of scaling. This conversation is front-and-center yet again, though this time the BCH community appears to be largely in agreement with the upgrades. Arguably, the most important change is the drastic increase in the block size cap, which will increase fourfold to 32MB. Other upgrades include the addition of previously de-activated operation codes, which may allow Bitcoin Cash to offer a wider range of functionality in the future. Speculation is already creeping in about its potential as a token platform or its ability to store additional data on the blockchain. Enter smart contracts, stage left.
What's the word on the street?
This hard fork is likely to come and go without much drama. The real question is why the increase to the block size cap is necessary at all right now? BCH block sizes have recently been far less than even 1MB, and nowhere close to their existing cap of 8MB.
The Winklevoss twins are back in the news this week after being awarded a patent for operating an exchange-traded product (ETP) for cryptocurrencies. Specifically the application stated the following:
“Systems, methods, and program products for providing an exchange traded product holding digital math-based assets are disclosed. Shares based on digital math-based assets may be redeemed using one or more computers by determining share price information based upon quantities of digital math-based assets held by a trust, electronically receiving a request from an authorized participant user device to redeem a quantity of shares, electronically transmitting a quantity of digital math-based assets from one or more origin digital asset accounts to one or more destination digital asset accounts associated with the authorized participant, and canceling the quantity of shares from the authorized participant.”
That’s a long way of saying that the Winklevoss brothers now own the IP for creating an exchange traded instrument where the underlying assets are mathematically or cryptographically generated. This is notable mostly because it’s the first such patent in the exchange traded space but it does not mean that regulators approve of such an offering. Traditionally, ETPs are used to track movements of a particular index (ETF) and used by various retail and institutional investors to manage risk.
A new law in Thailand pertaining to digital assets took effect on Sudnay May 13th and will require sellers to register with the Security Exchange Commission (SEC). Finance minister Apisak Tantivorawong stated that the law was necessary to combat money laundering, tax evasion and crime. This puts Thailand in the same bucket as Japan and Korea in terms of regulatory environment for cryptocurrencies. The state recognizes it as an asset and implements some sort of KYC/AML features in order to combat financial crime and not stymy investment.
China made crypto headlines when the government announced that they would publish a monthly cryptocurrency analysis amid ‘lack of independent ratings’. It is unclear exactly how their ratings would be unbiased as several projects still have strong ties to Chinese investors and consumers. The Department of Chinese Electronic Information Industry Development (CCID) will analyze 28 cryptocurrencies including Bitcoin, Ethereum, Litecoin, Monero, NEO, QTUM, Ripple and Zcash among others. An amalgamation of scholars and industry experts will opine on each of these reports. The project is called the ‘Global Public Chain Assessment Index’ and will help bring transparency to the public on the potential of blockchain technology. While the mandate for the project is to focus on the technology it is reasonable to ask what the government intends to do with the findings as cryptocurrency trading remains banned in China.