Squared Capital: Weekly Insights #15
January 18: Crypto markets have remained mostly stagnant this week, with most of the crypto media focused around Ethereum’s Constantinople delay and the launch of the Grin mainnet. Looking at the top 100 cryptocurrencies, Augur has been the best performer of the week (see why below), and we have written in detail everything you need to know about Grin, the newly launched implementation of MimbleWimble blockchain protocol.
NOTEWORTHY NEWS
Ethereum’s Constantinople Network Upgrade Postponed — Jan 15, Ethereum blog
Earlier this week, the Ethereum Constantinople upgrade was postponed due to the discovery of a potential security vulnerability in the smart contracts. This announcement was made hours before the network upgrade, resulting in the Parity and Geth team releasing an emergency patch to avoid reverting the upgrade later.
OUR OPINION: It’s definitely better to delay an update rather than proceed and risk a reentrancy attack, which could potentially cause an attack similar to what The DAO smart contract experienced back in 2016, when funds collected through an ICO were siphoned out. As decided on today’s Ethereum core developers call, the Constantinople upgrade will take place around February 27th.
ICO Issuers Allocated $24B in Tokens to Themselves — Jan 16, BitMex Research
The latest report from BitMex Research focuses on the treasury balances of the ICO tokens on the Ethereum network, pointing out that the team-controlled holdings of tokens were worth an astonishing $24.2 billion on issuance. Due to the fall in the market value of the tokens, this figure has fallen to around $5 billion today.
BitGo and Genesis Trading Partnership to Offer Trading for Institutional Clients — Jan 16, CoinDesk
Cryptocurrency custodian BitGo and over-the-counter (OTC) specialist Genesis Global Trading have teamed up on a service designed to make Wall Street feel more comfortable dipping a toe into the crypto market. The tie-up means institutional investors storing digital assets with BitGo can use Genesis’ platform to execute trades at the speed they are accustomed to in the traditional financial markets.
OUR OPINION: Crypto custody is the number-one barrier to entry for traditional financial institutions and services, and a combined OTC desk and custody solution is like an “out of the box” solution for them. They would rather take a position with well-known companies in the space than with crypto exchanges.
DIGITAL ASSETS ON THE MOVE
Augur Price Surges as Veil Platform Launches on Ethereum
Markets responded very positively to the mainnet launch of Veil, a platform which was designed to run on Augur using the 0x protocol. After Augur’s ICO in 2015, it finally launched a product in 2018 and promised a decentralised and censorship-free prediction market experience, but very few have actually used their platform to date. The Augur platform has often been criticised for its relatively slow speed and delayed payment system, both of which, over time, discouraged users from trading on it.
Veil builds on Augur and offers a solution to low speeds and laggy payout problems. In a blog post announcing the launch of the Veil mainnet, the platform revealed that it will run on the 0x protocol, which offers speedy trading and immediate payouts. While this instant settlement feature is optional, it appears to be a great incentive, as there has already been an increased number of new users since the announcement.
THE WEEK AHEAD
All Eyes on MimbleWimble Blockchain Protocol and First Community-Based Implementation Grin
MimbleWimble (MW) is a blockchain protocol that focuses on privacy, fungibility, and scalability, released by an anonymous poster on one of the IRC channels related to Bitcoin. It was built on the foundation of another anonymously posted paper from 2013 that used one-way aggregate signatures (OWAS). MW was improved a few months later by Andrew Poelstra, a cryptographer at Blockstream, who released the improved version. The protocol relies on elliptic curve cryptography, also used in Bitcoin, but does not include a scripting language, which is needed for different kinds of additions, like payment channels and cross-chain atomic swaps.
Currently there are two implementations of MW in existence: Beam and Grin. While both of them had no ICO or premine, Beam is led by a company that will take a portion of block rewards for the first four years in order to reward their team and investors, similar to what Zcash does. Grin is lead by a group of developers around the world and has no such incentives — all block rewards are issued to miners. While the two projects initially look very similar, they differ greatly on many levels, such as the formal structure of the project, monetary policy, mining algorithm, and programming language. Both mainnets were launched in the first half of January and, as expected, the crypto community is now showing much more interest in Grin.
MW improves privacy by using Confidential Transactions, CoinJoin, and a solution based on Dandelion. Confidential Transactions only let the participants of the transaction know the amount, while cryptography is used to prove that spent coins were not made out of thin air. CoinJoin combines inputs from different users, gathers them in a set and tumbles them, so that transactions are harder to trace. While CoinJoin is used by several wallets on other blockchains, in MW the feature is part of the protocol and not optional. All transactions from a single block are combined into one transaction, making it extremely hard to trace. The more transactions there are, the stronger CoinJoin becomes. Finally, a solution based on Dandelion is used to obfuscate user’s IP address by changing the process of a transaction being spread between the nodes when it is first broadcast to the network by the sender.
MW improves scaling by eradicating inefficiencies, by pruning the blockchain of unnecessary data. MW is removing spent outputs by combining intermediary transactions together. When A sends to B and B sends to C, the output results at C, so the A — B is not required to remain, when transactions are private in any case. The authorisation data of A — B transactions still remains, so that transactions are irreversible but the evidence of the transaction can be removed. This allows nodes to remove majority of historic blockchain data and the network remains functional; blockchain does not grow in size with time and transactions as fast as traditional blockchains do. Current Bitcoin’s full node size is 233 GB and Ethereum’s is 168 GB.
While both Grin and Beam started trading already, price discovery is still undergoing as protocol implementation is a novelty in the space and many are still unaware about how to use it and store coins safely. Grin is currently in a “bottle neck” phase, because some mining pools didn’t proceed with the reward payouts yet, issuance rate is very high, and due to technical difficulties with transactions, as the process is different compared to BTC or ETH. We made a price estimate for Grin, by comparing it with two most similar projects on the market — Monero and Zcash. For the calculation we used the current network values of the aforementioned, divided by Grin’s projected emission. Price estimate we came up with is between 4.3 and 4.9 USD.
MARKET OVERVIEW & METRICS
Weekly Crypto Stats
- Global network value reached $122.5B, with -0.8% weekly delta.
- Global crypto market turnover was $16.6B, 23% of ATH.
- Bitcoin dominance is 52.4%, with 0.2% weekly delta, beta 0.81.
- Ethereum dominance is 10.52% with -3.84% weekly delta, beta 1.29.
- Bitcoin hashrate is 37.14B TH/s, with -14.8% weekly delta.
- Ethereum hashrate is 176.71K GH/s, with -6.7% weekly delta.
CHART OF THE WEEK
Both Bitcoin and Ethereum hashrate saw a 15–20% recovery since December, rendering all the “death spiral” worries unsubstantiated, as the difficulty adjustment working as intended.
WHAT CAUGHT OUR INTEREST
- The Year in Ethereum
- Fundamentals of Proof of Work
- Brave passes 5.5 million monthly active users and features over 28,000 Verified Publishers
- Giga Watt Bankrupt, Ceasing Daily Operations
- Blockstream Satellite system broadcasts Bitcoin around the world 24/7 for free
- BitPay Reports $1B Processed Transactions in 2018
- Russia Denies Bitcoin Acquisition Rumors
This content has been put together by Marko Štemberger and Tilen Držan. Feel free to contact us for any feedback or if you have questions. Information provided above is not to be considered as an investment advice.
Sign-up to our weekly insights mailing list if you found the above content useful. We send the newsletter out every Friday.
