Daily Bit #119: During a Gold Rush…

Daily Bit
Daily Bit
Jun 18, 2018 · 7 min read
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Word On The Street

Exchanging Maces

Naturally, this is a bad look. It’s a result of intense competition and lack of regulation in foreign markets, where exchanges stand to make a killing from trading fees and coin listings without getting slapped by authorities — at least for now. Wash trading can lure in new traders, meaning you better believe exchanges will try to spin the practice as “done for the good of a project.”

Then there are the fees. In short, they’re sky high. It’s been rumored that top exchanges demand as much as $3 million per listing, with the majority listing price tags north of $500k.

Are centralized exchanges evil villains?
As always, that depends on your vantage point. So being the impartial daily newsletter that we are, let’s take a look at several POVs:

During a gold rush, sell the shovels. It’s the don’t hate the player, hate the game mentality. Sure, requests are through the roof compared to Nasdaq ($225k) and NYSE ($300k), but projects are submitted due to the increased liquidity and recognition that come from larger exchange listings.

Listing cryptos is complicated stuff. Referencing a Reddit thread, there’s a number of items on an exchange’s to-do list that could potentially warrant higher fees (though maybe not this high?):

  • Malicious code must be identified and removed
  • New servers are required for each mainnet wallet
  • Software needs to be updated and synced to avoid bugs

Not enough capacity. Basic economics tells us that listing demand > exchange supply → higher price of entry.

Not your average asset exchange. As Qiao Wang of Messari notes, there’s a separation of duties for the roles of a (1) matching engine, and (2) clearing firm, in traditional markets. Additionally, exchanges normally are not (3) market making, or (4) providing custodial services.

In crypto, centralized exchanges cover all four. If we could pin the tail on the main driver of high listing fees, this is our mans. Until DEXs become sophisticated enough to loosen their grip, centralized exchanges should have no problem continuing to demand exorbitant fees.

Where’s Blockchain?

Plan B: Safe Haven

Fortunately, we’re not alone in our concerns. Safe Haven is an upcoming project intended to live up to its name. Quoting founder Jurgen Shouppe, “Safe Haven is your safe haven for distributing your data, possessions, and wealth to those that you earned it for.”

Because people are different, Safe Haven offers four products that service different giftees:

  • The Family Circle Plan
  • Business Continuity Plan
  • Investment Circle
  • Safe Haven Vault

That’s accomplished with the aid of a patented Trust Alliance Network, or TAN. Behind the buzzwords, TAN would create a web of legal entities involved in the crypto-asset management process to collectively manage user funds.

Now, for Safe Haven’s key terms:

  • Initiator: This is the crypto investor looking to share their wealth. They contact the TAN to distribute their keys to those set to receive their funds.
  • Validator: TAN member selected by the initiator. They distribute shares to stakeholders after smart contract conditions are met.
  • Shares: Encrypted data that represents ownership in the initiator’s assets.

Is there a token? Sure is — SHA tokens are used to support the transmission of smart contracts. Think of them as the GAS for Ethereum.

Our take: In terms of use cases, this is a big one. Anyone who struggles with passwords is up for grabs as a customer. Check out VeChain Thor hubs for more info — that’s the platform that Save Haven will be launching on.

What Else You Should Read Today

General

  • CryptoZombies, which teaches people how to code dApps on Ethereum, is going to be launching a collectible card game similar to Magic the Gathering.
  • Binance shirts are being given away at the 2018 World Cup to a select few who post on instagram before July 16th.

Market

  • Crypto Cred ponders if this year’s Bitcoin bull market may be more subdued than that of 2017.
  • Grayscale Investment is now adding ZenCash to its product offerings.

Problematic

  • The Italian government has seized Bitgrail’s bitcoin wallets after announcing bankruptcy, despite the cause being a $170 million hack.
  • Syscoin suffered a hack due to a malware attack that replaced the project’s Windows client on Github.

Bulls and Bears

More specifically: provide an quicker means of tokenizing physical assets and launching trading platforms.

The product tackling that goal is TrustedVM. According to the AlphaPoint CEO, the company’s Intel backed technology can cut a solution’s farm to table time of a matter of months rather than years.

There are big partners, such as Microsoft, Hyperledger, The Ethereum Enterprise Alliance, and the Chamber of Digital Commerce…

…and notable customers, such as CME Group, Scotiabank, and the London Stock Exchange.

Big picture
The bet highlights a central theme of the past several months: investors are diversifying beyond blockchain platforms and are targeting blockchain solutions for returns.

After all, most folks investing funds are already knee deep in digital asset holdings. Assuming that they’re playing the long game (hint: they are), diversifying dollars into onramps for the digital economy and other supporting platforms seems like a sensible move.

Bear: You know dApps here are so damn expensive, want to share? As we found out from a recent Reddit thread, that’s a conversation developers are likely having when it comes to running their application on the EOS blockchain.

Here’s the deal: CryptoKitties were cute, but they brought out the ugliness in Ethereum. At one point, nearly 15% of all Ethereum GAS “tolls” were dedicated to cat transactions. If CryptoKitties were to run on EOS, developers would likely need massive caches of funds.

By The Numbers
For EOS, a dApp’s spendable resources depend upon the EOS tokens that the team holds. So to eye jawn the cost of running CryptoKitties on EOS, consider the following:

  • 15% of transactions x ~$9.3 billion market cap = ~$1.4B

However, EOS (~1,000 tx/second) can perform transactions faster than Ethereum (~15 tx/second). With that in mind:

  • 1,000 tx/sec / 15 tx/sec = ~67
  • ~$1.4B / 67 = ~$209M in holdings required
  • ~$209M x 5% annual inflation rate = ~$1M annual cost to run the app

Why it matters
Tokens need use cases. Otherwise, they’re little more than vaporware. And as we saw from this weekend’s fiasco where the EOS blockchain shut down for 5 hours due to a “severe failure”, there’s rumblings about whether EOS is truly worth 9B’s and change.

Is this FUD? No, these are facts. Folks are free to place their bets where they please — just be aware that most assets are venture grade and have no guarantees of future returns.

For example, take Bitconnect and Dentacoin — people forget that both had market caps over $2B back in January.

Education

Comparing Bubbles

It’s difficult to equate value to important stuff because numbers often usually can’t be pegged to their worth. Internet companies weren’t going to produce cash flows for some time. And crypto doesn’t even produce cash flows — it’s an entirely new breed of speculation.

Do they have any similarities?
A common debate is whether the crypto bubble finally imploded. We personally don’t think that’s the case. To understand why, take a look at some of the key differences behind each affluenza:

  • Market size: Whereas dot-com capped out at roughly $3 to $5 trillion dollars, the recent crypto peak topped at about $830 billion.
  • Geographic location: The majority of dot-com companies traded in American markets. Crypto is accessible to anyone with an internet or WiFi connection.
  • Accessibility: Crypto accounts took less time to create and demanded less capital, opening the door to even more investors.
  • Social Media: Greater connectivity to the world allowed herd mentality to manifest.
  • History: Those that sat idle while the dot-com bubble swelled weren’t going to go 0-for-2 in opportunities to obtain life changing wealth.

So, are we like Harry of the Wet Bandits? Have we reached the top? Again, we’re not buying it. While the crypto bubble developed much quicker than that of the dot-com, that’s a testament to how much faster society moves today.

From March 2017 to early January 2018, the crypto market cap grew by over 3,300%. Those metrics are staggering when compared to the roughly 900% jump seen in the Nasdaq leading up to the dot-com pop.

Bubbles can rise again
As Chris Burniske mentioned in The Crypto J-Curve, market values are an ever changing dynamic of current utility value and discounted expected utility value, aka speculative buying.

Remember this: bubbles that had legitimate value behind them eventually recovered from their crashes to surpass old peaks. Look at (1) Microsoft that finally passed it’s $59/share valuation during October 2016, (2) Amazon’s seven year recovery, and (3) Intuit, Priceline, and Adobe, all of which took over a decade to return exuberant levels of the 2000’s.

The bottom line: If digital currencies are actually going to change the world, there’s reason to believe that this isn’t the top. However, that can take time — better get comfortable if you’re on board.

That’s all for today!

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The Daily Bit

Daily Blockchain and Cryptocurrency Newsletter.