Weekly Crypto Recap [26/10/18 – 1/11/18]

Week in Brief


 

Bitcoin turns 10: the Satoshi whitepaper that questioned the necessity of the financial system that we know today

 

The institutional herds are coming — Fidelity, the 5th largest asset manager in the world announce the launch of Fidelity Digital Assets

 

Total crypto market cap is down 1.7% w/w, with 75% of the top 100 coins by market cap trading down w/w. In the last 24 hours, 87% of the top 100 are trading up whilst BTC is down 1.29% and ETH is down 1.92%. BTC, ETH and XRP lead the market cap respectively.

 

Market Performance


Top Stories


 

Bitcoin turns 10: the Satoshi whitepaper that questioned the necessity of the financial system that we know today

 

On the 31st of October 2008, coinciding with both the beginning of the global financial crisis, with the collapse of Lehman Brothers, and Halloween itself, notorious Satoshi Nakamoto unveiled the Bitcoin whitepaper to the world. Whether the pseudonymous creator of Bitcoin is a male, female or a group of individuals is up for debate. Yet the imperceptible timing of this release cannot have been a coincidence, for, in the first block ever created, the genesis block, Satoshi inscribed a clear message for all to see:

“The Times 03/Jan/2009 Chancellor on brink of second bailout for banks”

Whilst Wall Street crumbled under the midst of the largest financial crisis since the great depression and possibly the greatest financial scandal of all time, an alternative financial infrastructure was being quietly developed online in order to destroy the current status quo.

Although Bitcoin would not be discovered by the mainstream until the speculative mania of 2017, the foundations for a new way of transferring value between individuals was already firmly laid. No longer would banks be necessary for individuals to transact trustfully with one another. Instead, a financial system had been built with trust inherently baked into the Bitcoin code. Such trust is immutable, it cannot be tampered with, it cannot be censored and it cannot be seized.

The world is still waking up to what Satoshi coined a “purely peer-to-peer version of electronic cash that would allow online payments to be sent directly from one party to another without going through a financial institution.” But as we loom on the edge of another global financial crisis, how much longer will individuals place trust in intermediaries who continually exploit everyone but themselves. Bitcoin has provided an exit sign for individuals to leave this corrupt system and become their own bank. Such financial freedom is arguably one of the most impactful inventions one will see in their lifetime. One thing is for certain, Bitcoin is here to stay.

 

The institutional herds are coming — Fidelity, the 5th largest asset manager in the world announce the launch of Fidelity Digital Assets

 

Fidelity, the renowned asset management franchise, announce the launch of their cryptocurrency investment vehicle, Fidelity Digital Assets, aimed at onboarding institutional investors to the marketplace. The firm is currently the 5th largest asset management company in the world, with a total of $7.2 trillion of customer assets under their control. This dwarfs the current market cap of the cryptocurrency industry, a mere $200 billion at the time of writing. If just 10% of their total assets were to become cryptocurrency assets in the future, this would sharply bring the cryptocurrency market estimation towards a trillion itself. Alongside the other institutional investment onramps which are around the corner, such as Bakkt, early retail adopters are almost certain to cash in big on their curiosity and foresight.

Based in Boston, the limited company aims to bring industry-grade custody solutions for institutional investors not possible with traditional unregulated cryptocurrency exchanges. They will achieve this with a geographically diverse set of cold storage locations which are disconnected from the internet itself and vault protected. At current, Institutional investors are simply not willing to risk the large sums of capital they have at their disposal on exchanges which could be shut down, hacked or exit scammed at any moment. Instead, such market participants need assurance from regulated and familiar mechanisms that their funds are secure at all times.

The firm will also provide a cryptocurrency trading platform alongside 24/7 institutional advisory services to cater to the market that never sleeps. Tom Jessop, founder of Fidelity Digital Assets states that “This is recognition that there is institutional demand for these assets as a class, family offices, hedge funds, other sophisticated investors, are starting to think seriously about this space.”. Ultimately, it is clear that the institutional herds are coming with the funds needed to really push this market into a new era, for better or worse. Optimistically, this institutional jumpstart could be exactly what the market needs right now to keep momentum, allowing the underlying technology to continue to improve at an exponential rate.

 

Meanwhile


 

Cryptocurrency titan, Coinbase, receives a further $300 million dollar investment in their most recent round of funding, leading to a total valuation of over 8 billion dollars (Coindesk).

Bakkt is set to be launched in December, a cryptocurrency exchange founded by the intercontinental exchanges (ICE) seeking to solve the custody problem for institutional investors, confirming a new era of investment from retail to Wall Street may be on the horizon (Bitcoinist).

The US Securities and Exchange Commission (SEC) launches a Strategic Hub for Innovation and Financial Technology, in hopes of updating individuals on SEC regulatory issues, in order to be more transparent and create greater confidence in the market. (The Daily Hodl).

 

What We’re Reading At BBOD


 

Bitcoin At 10: The Satoshi Whitepaper

Why Bitcoin and Crypto Have No Future

MappleChange: The Story of Another Cryptocurrency Exchange Exit Scam

 

What We’re Listening To At BBOD


 

Reflections on the 10 Year Anniversary of The Bitcoin Whitepaper

Radical Markets: Uprooting Capitalism and Democracy for a Just Society

What Bitcoin Did: Crypto Custody

 

Fundamental Pick: Elastos (ELA)

BBOD Rating [10/10/2018]


SPEC BUY: A speculative opportunity for investors with a higher risk tolerance

 

Overview


Currency Code ELA
Transaction Start Date 01/02/2018
Total Supply 33,647,865
Circulating Supply 7,722,239
Protocol Type Blockchain Platform
Base Protocol ELA
Where To Buy LBank, Huobi, CoinEgg, Kucoin

 

Problem To Solve


Since the inception of the Internet, it has become impossible for content creators to claim individual ownership of their works and to ensure such original creators reek the monetary benefits from their creative outputs. This is the result of the Internet’s inability to provide unique content which cannot be copied by individuals and spread freely over its vast distributed network. With over 3 billion individuals having access to the Internet, who all possess the ability to copy original content with ease, trying to stop the flow of illegal content between parties is simply impossible. Moreover, it is not only individual actors who take advantage of the ability to stream content globally, well-known centralised digital content providers such as Spotify, Youtube and Netflix all profit substantially from monetising digital content which is not of their own creation. Ultimately, this process often leaves original content creators with a tiny fraction of the actual profit they should be receiving for their creative endeavours and large corporations with the majority.

On the opposite side of this dilemma, individuals themselves no longer physically own much of the digital content they consume. People simply pay for subscription services and become drip fed by whichever corporation they choose to worship. Many may argue that, in fact, this is not an issue for the individual, as digital content has never been so easy to consume, yet is convenience necessarily a good thing without rights to ownership? In the past, individuals collected physical possessions over the period of their lifetime, such as books, records and photo albums, which could then be passed down to their family. This not only acted as a memoir of deceased loved ones but also a mechanism of passing value down through generations. Today, little of what we consume is actually ours and consequently, we cannot monetise our possessions when needed for ourselves or our children.

 

The Solution


In order to tackle the dissemination of creator content, Elastos [ELA] proposes a unique Blockchain design philosophy which detaches original content from the internet itself and runs separately on what Elastos has coined the ‘Smartweb’. Here creators content will not be uploaded to the internet that we know today, rather, it will be placed on a decentralised application on Elastos ‘Runtime’ software. ‘Runtime’ will enable individuals to store, view and exchange original content peer-to-peer on their personal smartphones or computers without connecting to the internet itself. Instead, Elastos will utilise the Blockchain only to confirm transactions between parties and verify their identity without needing a third party.

Thus, creators using the system will have the ability to attach their personal identity to their unique content on the Blockchain, allowing them to track exactly how many individuals are consuming their content, ensuring all revenue is sent directly to the original artist rather than unnecessary intermediaries. Moreover, Content creators will have the ability to introduce the concept of digital scarcity to their work, limiting the amount of digital content that can be bought by consumers to a fixed number. As in all markets, scarcity often creates increased incentives for individuals to purchase an item in a specific timeframe whilst supply remains fixed, increasing adoption and price over time. Such mechanisms should allow creators to reek the financial rewards they deserve for digital content, unlike in the current status quo.

Additionally, the Elastos ‘Runtime’ ecosystem will benefit consumers of the network, by allowing them access to original content which they will digitally own, verified by their Blockchain Identity. Unlike in today’s markets where one merely owns the right to use a product for a specified amount of time via a subscription service, consumers of Elastos ‘Runtime’ network will have unconditional ownership of their digital assets. Much like in the physical content world before the era of the internet, this will allow individuals to generate future revenue if they decide to sell some of their digital content. For instance, perhaps, due to the scarcity of the digital content when first purchased, such an asset has now significantly increased in price as there is now huge demand and virtually no supply, one could benefit akin to selling a rare piece of art. This mechanism creates an entirely new smart economy by allowing anyone to participate in wealth generation through peer to peer free markets without the interference of costly and unnecessary third parties.

 

Summary


Ultimately, Elastos allows digital content to be stored, viewed and traded in a secure and transparent manner. Without the need for third parties, creators are guaranteed to be rewarded with fair compensation for their creative output whilst consumers can benefit from their digital content ownership. Within this closed environment, the projects native ELA token will be used to pay for access to content that individuals desire. ELA can then be spent within the Elastos ecosystem itself or transferred to any other financial network.

 

Catalysts


  • Rewarding Content Creators: Since the introduction of the internet, content creators have lost out significantly as they have no means of stopping the dissemination of their artistic works. Moreover, unnecessary intermediaries have profited substantially by providing user-friendly interfaces which consumers have gravitated towards due to their ease of use. This is only set to continue as more individuals have access to the internet and product offerings become more sophisticated. Elastos provides a way out of the traditional content economy that allows creators to become the sole beneficiaries of their work, an idea that would not be possible without Blockchain technology and certainly appealing to creators themselves.
  • A Universally Beneficial Ecosystem: Not only does Elastos benefit content creators, but it also allows consumers themselves to take back the ownership of their digital content. This should attract individuals who are fed up with paying for subscription services that have the right to remove content at any time. Elastos allows consumers to benefit from the financial rewards of having exclusive ownership of digital content by exchanging such content in a peer-to-peer manner. Individuals can also feel confident that their purchase decisions are directly affecting the lives of the artists they admire.
  • Longevity and Strength of The Elastos Team: CEO Rong Chen began work on Elastos after leaving a senior role at Microsoft in 2000. Over time, the project has evolved in line with the pace of technology to now include Blockchain technology, which now allows it to function. The foresight and longevity of the project suggest the team is certainly in this for the long haul. Elastos now comprises of over 52 team members, with well-respected Blockchain advisors including Jihan Wu (CEO of Bitmain) and Hongfei Da (Founder & CEO of NEO).

 

Risk Factors


  • Challenging Traditional Oligopolies: The market for content streaming services is fierce, with a few key playing dominating the space, such as Spotify, Youtube and Netflix. If Elastos is to overcome the huge amounts capital these companies have at their disposal, they are going to need to pursue aggressive marketing strategies in order to establish themselves as an alternative competing brand. Despite this, the overwhelming benefits for content creators who utilise the platform should push the market forward, if they decide to limit content exclusively outside of the traditional system.
  • Copying Copyright Material: Although digital content will be detached from the Internet on the Elastos ‘Runtime’ software, this does not stop consumers from screen-capturing videos, text or rerecording audio. Individuals desire to find content for free will prevail if they search hard enough. Regardless, individuals who choose to do this will only receive knock-off versions of an original file of lesser quality, unlike today where original files can easily be copied and disseminated.
  • Verification: Elastos have failed to state how they will verify content is uploaded by the original creator. Although a Blockchain ID will be assigned to each piece of digital content, there is nothing stopping someone else uploading a file to the ‘Runtime’ system and claiming it as their own. In order for this to occur, however, the fake uploader would have to possess the original file and upload it before the original content creator, a rare circumstance.

 

Conclusion


Elastos provides an innovative alternative ecosystem for content creators and consumers to maintain full control of their digital assets and monetise them without the need for unnecessary intermediaries. The projects key strength is the ability to create a marketplace for digital content detached from the internet itself, Elastos ‘Runtime’, utilising the Blockchain only to verify the identification of content creators and to implement trustless peer-to-peer transactions. This has the potential to create an environment outside of the traditional corporate structure that will allow consumers to truly own their digital content and content creators to be rightfully rewarded for their creative endeavours. If Elastos can market their brand effectively, content creators could start transitioning exclusively over to the platform, leaving consumers no alternative but to adopt the system if they wish to enjoy their favourite artists. With support from cryptocurrency giants such as Bitmain and NEO and a dedicated team of 18 years, Elastos seem capable of successfully implementing their idea. Thus, as the mainstream begins to adopt decentralised applications, Elastos is certainly one to watch.

 

BBOD Rating Standard


BUY: A low-risk buying opportunity

ACCUMULATE: An opportunity to buy a medium risk cryptocurrency at a low price

SPEC BUY: A speculative opportunity for investors with a higher risk tolerance

HOLD: Maintain current levels of position until further research is published

SELL: Investment is associated with the potential of losing capital

 

Disclaimer


BBOD Research is an independent cryptocurrency research-house. The company has not received any remuneration (cryptocurrency or otherwise) in preparing this analysis.

This report has been prepared solely for informative purposes and should not be the basis for making investment decisions or be construed as a recommendation to engage in investment transactions or be taken to suggest an investment strategy in respect of any financial instruments or the issuers thereof. This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research under the Market Abuse Regulation (EU) No 596/2014. Reports issued by Trade the Future Holding (“BBOD Research”) or its affiliates are not related to the provision of advisory services regarding investment, tax, legal, financial, accounting, consulting or any other related services and are not recommendations to buy, sell, or hold any asset. The information contained in this report is based on sources considered to be reliable, but not guaranteed, to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of this date and are subject to change without notice. BBOD Research will not be liable whatsoever for any direct or consequential loss arising from the use of this publication/communication or its contents. Trade the Future Holding and its affiliates hold positions in digital assets and may now or in the future hold a position in the subject of this research.

 

Fundamental Pick: Binance Coin [BNB]

Image result for binance coin

 

BBOD Rating [10/10/2018]


BUY: A low-risk buying opportunity

 

Overview


 

Currency Code BNB
Transaction Start Date 25/07/2017
Total Supply 192,443,301
Circulating Supply 117,443,301
Protocol Type Cryptocurrency Exchange
Base Protocol BNB
Where To Buy Binance, HitBTC
Go Long/Short BBOD

Binance Exchange Overview


Binance began trading as a little known Chinese cryptocurrency exchange in July 2017, during a boom time for the marketplace as a whole. Utilising the fortunate timing of their project and an aggressive marketing strategy the company became the highest traded spot exchange by daily volume a mere six months after inception. This rise to fame was unprecedented and something competitors such as Bittrex and Poloniex certainly did not anticipate. Binance achieved such success by significantly beating competitors on tradings fees with 0.10% per trade as opposed to 0.25%. Additionally, they employed an extremely liberal coin listing policy, growing their community at an exponential rate by attracting traders from a wide pool of already well-established cryptocurrency projects. Today, the platform lists 280 active trading pairs with an average of 1 billion trading volume daily and over 9 million active users.

 

Binance Coin [BNB] Overview


In order to raise money for the platform, Binance launched their ICO for Binance Token [BNB] on July 2nd. Due to the substantial bull market of the time and their solid project, Binance sold the entirety of their 100 million BNB tokens within several minutes of availability. The token sold for an average price of 0.11 USD, equating to approximately 11 million USD total funds raised during their ICO. BNB is an ERC20 token based on the Ethereum blockchain with a max supply of 200 million, after which no more coins will be created. Although BNB is now widely acknowledged as a utility token for use on the platform, the value of the token also corresponds to the equivalent of a traditional stock, with holders owning a proportional share in Binance that will likely appreciate proportionally with the growth of the exchange. This is a particularly rare phenomenon in the cryptocurrency space, where the majority of coins do not have such a substantial functioning product supporting them.

 

The Utility of Binance Coin [BNB]  


Discount

Currently, the main use case of BNB token stems from its ability to be used to decrease trading fees on the Binance Platform. Users can choose to pay for fees using BNB instead of utilising the cryptocurrency they are trading. If one chooses to do so they can expect 50% trading fees in their first year of membership, which decreases by half every year of subscription, until year five, where a discount no longer applies. In essence, BNB becomes the fuel for the Binance ecosystem, providing real-world utility to the token, unlike many other cryptocurrency projects whose promise of utility stems from the future success of yet to be released product. The reduction in fees is hugely significant to frequent traders as the platform itself currently undercuts any other exchange on the market without even employing the token discount, at 0.1% per trade. Combine this with the lowered fees when BNB is implemented to trade with and the exchange substantially undercuts its competitors on trading fees. For example Huobi and Bitfinex both employ trading fees of 0.2%. The oversight of Binance competitors higher fees is likely what drew many to the platform from in the first place.

 

Token Burn

In order to counteract the decreasing value of the BNB fee discount over the period of five years, Binance has employed a quarterly coin burn for their tokens. Essentially, Binance will buy back BNB tokens from the market and send them to a public address whose private keys are unobtainable, effectively destroying the tokens. This decreases the supply of BNB in circulation with demand remaining the same, usually resulting in an increase in price as the token becomes more scarce. This ingenious tactic has gained much publicity and succeeded in its aim thus far, with prices increasing substantially before coin burns that have occurred in the past. Binance aims to do this every financial quarter with 20% of their profits. So far they have met their promise, with 986,000 BNB burned in their first quarter, 1,821,586 BNB in the second and 2,220,314 BNB in the third, approximately 30 million USD at the time. The process will continue until half of their total supply remains, 100 million BNB. Such a mechanism has captured the attention of investors who will likely hold onto BNB for speculation purposes once users fees no longer decrease by utilising the token for trading fees. With increased visibility into the valuation of the BNB due to its direct correlation to the success of the exchange, no doubt prices will increase if the business continues on its current trajectory.

 

ICO Launchpad

Continuing their effort to provide BNB with meaningful value, the Binance Launchpad program allows individuals to invest in certain cryptocurrencies that are in the process of being listed on the platform using BNB. This furthers the tokens use case and creates a seamless marketplace between available ICOs and the exchange itself. Additional add-ons such as the Launchpad program increase the utility of the token and hence its demand, potentially leading to an increase in price. Continuing the process of frequently improving the usability of BNB will likely be key to the tokens success going forward. Such efforts thus far include Monaco adding BNB to their cryptocurrency Visa Card/App and the ability to buy virtual gifts on Uplive using the token.  

 

Future Applications


Decentralised Exchange

Looking to the future, Binance plan to build a decentralised cryptocurrency exchange (DEX) which will utilise the BNB token as the primary base asset and gas to be spent. Binance has coined this project Binance Chain, although it is still in the stages of development, admittedly aiming to outsource the underlying technology by providing a 1 million USD bounty and a job at Binance to an individual with a successful proposal. Although, if Binance Chain is as successful as Binance itself, BNB will gain significant value from a substantial increase in demand for the token for investors to utilise on the DEX platform. Moreover, they would mitigate regulatory risks of their current centralised exchange, as decentralised exchanges are inherently impossible to shut down. Despite this, the current DEX environment has largely suffered from a lack of usability, functionality and liquidity. Thus, pulling off a decentralised exchange successfully at this moment in time would be no easy feat.

 

BNB Catalysts


Organic Growth Through Reputation: Binance’s significant success in the cryptocurrency spot exchange market thus far has gained them substantial brand recognition in the marketplace. Couple this success with an ever-expanding user base and this could translate into sustainable long-term growth for the BNB token.

Continual Drive for Innovation: Since their inception, Binance has made continual strides to expand their product offering and overall ecosystem. For example, improving the functionality of the exchange itself, introducing the coin burn function and offering market participants the opportunity to invest in cryptocurrencies utilising BNB in their Launchpad program. Further efforts to improve the Binance ecosystem will not go unnoticed and will certainly affect the price of BNB.

Sustainable Growth During a Bearish Market: Although the fortunate timing of the implementation of the exchange can be seen as luck by many, Binance have not failed to increase their market dominance this year in a declining market (approx. -70% YTD). The consistency of trading volume, hovering around 1 Billion USD per day suggests that when the market decides to turn bullish, the number of individuals who utilise the platform and its token will increase.

 

BNB Risk Factors


Regulatory Environment: Since the success of BNB is entirely hinged on the success of the Binance exchange, the centralisation of the exchange may become an issue if regulators choose to crack down on cryptocurrency exchanges in general and make an example of them as a key figure in the industry. The platform has shown no interest in complying with regulators and so the way forward appears to be creating their decentralised exchange Binance Chain, which they are far from realising.

Market Saturation: Now that the market for exchanges is becoming incredibly saturated, firms with capital are employing aggressive strategies such as feeless spot exchanges, eradicating the need for BNB’s fee reduction utility. Despite this, none have diversified their market as much as Binance thus far and it will be hard to keep pace if the company pays attention.

Centralised Ownership: Ultimately Binance is a centralised exchange and thus decisions on what utility BNB should hold are made by management officials. This removes the right for token holders to collectively decide the fate of their token going forward. Although, so far, one would be stretched to challenge the decisions for BNB’s utility, as the strategies implemented seem to have largely paid off.

 

Conclusion


The initial incentive to buy BNB tokens was to gain discounted trading fees on the Binance platform, as doing so would substantially out-compete other spot exchanges on fees. Although this function is slowly being phased out over the period of five years, over time Binance has presented multiple other utilities for their token such as the ability to invest in ICOs to be launched on the Binance platform using BNB and the future hopes of utilising the token on Binance Chain, their decentralised exchange in the early stages of development. Couple this with token burning to slowly decrease the supply of BNB and Binance seem to know how to create sustainable long-term value for their BNB token. Hence, looking forward, as long as Binance can keep pace with the ever-evolving regulatory environment, BNB appears to have a bright future ahead of itself.

 

BBOD Rating Standard 


BUY: A low-risk buying opportunity

ACCUMULATE: An opportunity to buy a medium risk cryptocurrency at a low price

SPEC BUY: A speculative opportunity for investors with a higher risk tolerance

HOLD: Maintain current levels of position until further research is published

SELL: Investment is associated with the potential of losing capital


Disclaimer


BBOD Research is an independent cryptocurrency research-house and research arm of BBOD Exchange. The company has not received any remuneration (cryptocurrency or otherwise) in preparing this analysis.

This report has been prepared solely for informative purposes and should not be the basis for making investment decisions or be construed as a recommendation to engage in investment transactions or be taken to suggest an investment strategy in respect of any financial instruments or the issuers thereof. This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research under the Market Abuse Regulation (EU) No 596/2014. Reports issued by Trade the Future Holding (“BBOD Research”) or its affiliates are not related to the provision of advisory services regarding investment, tax, legal, financial, accounting, consulting or any other related services and are not recommendations to buy, sell, or hold any asset. The information contained in this report is based on sources considered to be reliable, but not guaranteed, to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of this date and are subject to change without notice. BBOD Research will not be liable whatsoever for any direct or consequential loss arising from the use of this publication/communication or its contents. Trade the Future Holding and its affiliates hold positions in digital assets and may now or in the future hold a position in the subject of this research.

 

Weekly Crypto Recap [12/10/18 – 18/10/18]

Week in Brief

Tether (USDT), destabilises causing widespread panic on centralised exchanges as traders convert their USDT for Bitcoin.

The International Monetary Fund (IMF) proposes concerns regarding the rapid adoption of cryptocurrencies and how hacking events of centralised exchanges could threaten the international financial system.

Tim Berners Lee, the father of the World Wide Web introduces his new venture inrupt, which aims to decentralise the web, allowing users to possess control of their data as initially intended.

Total crypto market cap is up 7.25% w/w, with 80% of the top 100 coins by market cap trading up w/w. 30% of the top 100 are trading up in the last 24 hours, whilst BTC is down 0.1% and ETH is down 1.4%. BTC, ETH and XRP lead the market cap respectively.


Market Performance

Top Stories

A collapse in confidence of Tether leads Bitcoin prices to surge more than 20% in a matter of hours

On Monday morning GMT, Bitcoin soared in price from $6200 to $7500, before settling around the $6900 mark. Although this has allowed Bitcoin to break through the major declining price resistance formed over the past few months, whether this move is sustainable remains to be seen. The move comes after considerable controversy regarding Tether (USDT), a stable coin utilised by the majority of traders on centralised trading platforms. Despite its name, USDT has failed to remain tethered to USD, with considerable premiums being seen on notable exchanges who offer the cryptocurrency as their prominent tethered pair, such as Bitfinex, Binance, Kraken and OKEx. For example, USDT dropped up to 10% in value on some exchanges, trading at $0.9 on Kraken. Consequently, the sudden increase in the price of Bitcoin can almost certainly be attributed to traders moving funds from their devaluing ‘stable’ currency into Bitcoin itself. The irony in this move is unprecedented, with individuals usually relying on the stability of USDT in Bitcoin downturns. It appears for the time being Bitcoin has become a better store of value than USDT itself.

So what caused USDT to crash? The debate over USDT’s solvency is not new, many sceptics have questioned the reliability of the centralised stable coin, which is merely backed by the US dollar in a traditional bank account for some time. If the bank refuses withdrawals, a centralised exchange simply cannot allow their users to withdraw tethered funds themselves. As predicted, the solvency debate has now come to a head, with Bitfinex suspending withdrawals of USDT as a result of losing their banking partner Noble Bank, who supposedly backed USDT, alongside HSBC refusing to back USDT moving forward. Moreover, this has lead other centralised exchanges such as OKEx to suspend withdrawals causing further panic for market participants.

Bitfinex is now desperately trying to secure USD fiat pairs to reconcile themselves, but with such significant setbacks, it is hard to say whether USDT will ever be able to regain the credibility necessary to function as a tethered currency in the future. A push towards a decentralised stable coin, not backed by funds in a US bank account, such as MakerDAO’s DAI, could become a necessary scapegoat for those looking to find a stable hedge in market downturns in the future.

 

IMF issues warning regarding the rapid growth of cryptocurrencies and their impact on the global financial system

The latest International Monetary Fund (IMF) report, “Challenges to Steady Growth”, proposes that the rapid growth of the cryptocurrency marketplace over the past 2 years could pose a substantial threat to the international financial system as world banks struggle to keep pace. The report places a strong emphasis on how the increased adoption of cryptocurrencies could allow for large-scale hacking attacks on centralised platforms which do not have high enough security measures to prevent sophisticated hackers from infiltrating their wallets.

“Cybersecurity breaches and cyber attacks on critical financial infrastructure represent an additional source of risk because they could undermine cross-border payment systems and disrupt the flow of goods and services. The continued rapid growth of crypto assets could create new vulnerabilities in the international financial system” a comment from the recent IMF report

Thus, the IMF claims that the continuing adoption of cryptocurrencies by both retail investors and institutions could create significant vulnerabilities in the traditional financial system, as both parties begin to perceive cryptocurrencies as alternative means of value and begin utilising them for speculative or business purposes. Ultimately, the IMF suggests that if large institutions are to adopt cryptocurrencies, for instance, Ripple (XRP) for industries such as remittances, then the security of storage must be industry grade and backed by insurance mechanisms to ensure the safety of funds. Failing this, both industry players and individuals could suffer large-scale loses causing financial chaos.

Despite this, some bullish cryptocurrency advocates such as Emin Gun Sirer, a well-regarded professor at Cornell University, stated that any recognition from the IMF that cryptocurrencies are becoming a notable asset class is optimistic for the industry as a whole. Moreover, decentralised exchanges are now allowing decentralised custodial services to their clients, which are finally allowing individuals to utilise the power of the underlying blockchain technology to keep their funds secure outside of centralised wallets.

 

Tim Berners-Lee aims to decentralise the Web with new cryptocurrency venture

“I’ve always believed the web is for everyone,” Wrote Tim Berners-Lee, the iconic British engineer and professor of computer science who notoriously gave away the World Wide Web for free some 30 years ago. “The web has evolved into an engine of inequity and division; swayed by powerful forces who use it for their own agendas,” Berners-Lee added in a recent blog post.

We are at a critical tipping point for the internet, where privacy scandals are awash in the worldwide media and at the forefront of consumers minds. Individuals are rapidly losing trust in centralised authorities in our digital age – and they are demanding solutions. This was sparked by the infamous Cambridge Analytica scandal followed by the recent Facebook confession that they were using metadata to target specific voters for Trump’s political campaign. As such, individuals are no longer in the dark concerning how their personal information is being exploited for commercial or political gains.

As a result, in late September the father of the internet announced a new project coined inrupt, a project with a mission to decentralise the Web. Backed by Glasswing Ventures, the inrupt ultimately aims to restore power to individuals rather than the commercial bad actors who actively seek to capitalise on user data. Thus, inrupt’s true goal is complete decentralisation of the web placing privacy at the forefront, allowing the user, and only the user, to own the rights to their personal information. Now the race to secure user privacy has officially begun, inrupt’s visionary leader may just place them at the forefront of this process.  

 

Meanwhile

Coinbase adds 0x (ZRX), the first ERC-20 token to be added to their product offering for customers worldwide (Bitcoin Magazine).

A user of the Bitcoin distributed network confirmed to have transferred $194 million USD valued in Bitcoin for a transaction fee of 10 cents, a feat unimaginable in traditional markets (CCN).

Former Vice President of Coinbase has transitioned to a position at Bakkt, the notorious NYSE backed firm who will allow institutional investors access to the cryptocurrency world by legal means starting November (CryptoGlobe)

Despite the clear institutional interest in the cryptocurrency market, Barclays shuts down their trading division just months after its inception (CryptoSlate)

Choi Jong-Koo of Korea’s Financial Services Commission has reestablished his belief that ICO’s should not be able to operate within the country, whilst still undeniably showing support for blockchain for business sake (Cointelegraph)

 

What We’re Reading

The International Monetary Funds “Challenges to Steady Growth” Report

An interview with David Chaum, a cryptography pioneer who believes blockchain cannot reach its full potential until it becomes a successful medium of exchange

Tim Berners-Lee “One Small Step For The Web”

21 Cryptos Magazine, October Edition: The Next Bull

 

What We’re Listening To

Tether Fears! Node Investors take on the collapse of USDT of its effect on the market

Bad Podcast: Why Stablecoins Matter

The Oslo Freedom Forum in New York: Why Decentralization Matters

What Bitcoin Did: An Interview With Jimmy Song

Revolutionizing Democracy Using DAOs

 

Fundamental Pick: Neo

 

Image result for neo logo

 

BUILDING THE INFRASTRUCTURE FOR A NEW INNOVATIVE SMART ECONOMY 

 

BBOD RATING [10/10/2018]


BUY: A low-risk buying opportunity

OVERVIEW


Currency Code NEO
Transaction Start Date 09/09/2016
Total Supply 100,000,000
Circulating Supply 65,000,000
Protocol Type Base Blockchain
Base Protocol NEO
Where To Buy Binance, HitBTC, Bitfinex, Bibox

 

THE NEO ECOSYSTEM


NEO is a non-profit, open source Blockchain platform which aims to build the infrastructure for an innovative new smart economy. The project was founded in 2014 by CEO Da Hongfei and CTO Erik Zhang, backed by their now notorious Chinese firm Onchain, which undergoes Blockchain research and development in Shanghai. The project started out as the first Blockchain platform in China coined Antshares, before the founders decided to rebrand to NEO in an effort to appeal to a more global market. NEO understands that community development is the most essential aspect of any efficient Blockchain ecosystem and so have placed a great amount of emphasis on expanding their global developer community at a rapid rate. The project now supports such a community with side projects including City of Zion (CoZ), NeoResearch and NEL, who aim to continuously develop the ecosystem to make NEO one of the best functioning Blockchain platforms in the world.

 

THE SMART ECONOMY


In order to achieve the vision of a new smart economy based on a distributed network, NEO aims to utilise Blockchain technology and digital identity to digitise assets, automating these digital assets using smart contracts. Thus, NEO aims to convert real-world assets such as property, vehicles and physical possessions into digital assets recorded on the NEO Blockchain in the form of smart contracts, that can be verified to unique individuals using their digital identity. As a result, such digital assets acquire the ability to be traded, transferred and registered (to name a few use cases) via a distributed network, allowing global peer-to-peer agreements to be made efficiently and with ease. Not only does this open up a global market for digital ownership of assets, but it also provides immutability not possible when often untrustworthy centralised intermediaries are involved, creating a digitalised, programmable and trustless economy. Whilst some might be suspect to such a drastic change to the status quo, NEO’s purpose is not to destroy traditional Chinese institutions. Instead, they aim to help gradually transfer the Chinese economy into the smart economy of the future.

 

NEO APPLICATIONS


DIGITAL ASSETS 

As previously mentioned, in order to facilitate their smart economy NEO aims to convert traditional assets into digital assets on the NEO Blockchain. Digital assets are programmable assets which represent a traditional asset in the form of a smart contract. By converting traditional assets to digital assets individuals no longer need unnecessary intermediaries to transfer ownership between parties, exchange value or register an asset to a particular individual. Instead, the inherent trust of NEO consensus algorithm allows assets to become fully decentralised, traceable and transparent. All of this is possible due to NEO’s digital identity system which connects individuals to physical assets via digital certificates placed on the NEO Blockchain. Ultimately, digitalising assets allows individuals from all over the world to exchange physical value seamlessly without the need for a third party. This eradicates traditional fees associated with centralised authorities and provides liquidity from a globalised market.

 

DIGITAL IDENTITY 

Digital Identity will allow NEO to accumulate the information of willing organisations, individuals and other entities in electronic form, to create a digital fingerprint for such parties in a highly secure manner stored on the NEO Blockchain. As a result, once they are baked into the Blockchain, the identity documents will become tamper-proof and impossible to destroy. Such digital identity will then be utilised by parties using highly secure multi-factor authentication methods such as fingerprints, voice and facial recognition in order to digitalise assets themselves and exchange value of existing assets. The concept of digital identity allows organisations and individuals to transact knowingly with one another without needing to trust them. Moreover, assets registered using NEO’s digital identity system can be protected by law due to the transparency of ownership. This innovative solution combining law with a trustless system ensures all digital assets are unconditionally verifiable to parties and cannot be seized.

 

SMART CONTRACTS: THE ETHEREUM OF CHINA?

Whilst many have coined NEO ‘The Ethereum of China’ there are some key differences. Although both platforms provide similar functionality, allowing developers to build smart contracts on top of their existing platform in order to create dApps, NEO allows a much more diverse set of programming languages to be utilised. For instance, if one wishes to build a dApp on the Ethereum Blockchain, they will need to learn Solidarity, Ethereum’s unique programming language. Comparably, in order to create a dApp on the Neo Blockchain, one can utilise a variety of widely used coding languages including Javascript, C#, Python, Java, and Go. The ability for developers to code smart contracts without needing to learn a new coding language significantly reduces the high barriers to entry in the industry by eradicating the time it takes to learn a new distinct language. This opens up a global pool of talent who already have the ability to program smart contracts with ease. Looking forward, this should allow for many more dApps to be deployed than possible on the Ethereum network which should grow the NEO ecosystem exponentially.

 

CATALYSTS


Prominence Within China: The Chinese economy is growing at an exponential rate, with the Chinese government placing a strong emphasis on innovation within the financial-technology (FinTech) sector. Already meeting with government officials, NEO has placed itself at the forefront of this development. Other platforms such as Ethereum will incur high barriers to entry when seeking to penetrate the Chinese market, due to the inherent language barriers and cultural differences. Hence, a homegrown Chinese platform such as NEO has the potential to gain substantial market adoption within China, especially when they place a strong emphasis on respecting Chinese regulations alongside business and cultural norms.

Universal Programming Language Support: Many existing Blockchain platforms require developers to learn a unique programming language in order to build smart contracts on their platform. This excludes a wide number of businesses from developing dApps on their platforms, due to the obvious cost and time of learning an entirely new coding language. To the contrary, NEO affords developers the ability to program smart contracts using numerous traditional programming languages, substantially reducing the cost of implementing smart contracts into existing business practices. This removes the high barriers to entry for businesses looking to enter the Blockchain ecosystem, which could lead to widespread adoption.

International Partnerships: Despite being based in China, Neo has managed to garner support from international tech giants. For example, Microsoft Azure partnered with NEO in order to attract talented developers to the platform from a global community. Such large-scale partnerships are likely to further bolster their standing within China, drawing attention to the platform from other tech giants within the local Chinese business community.

 

RISK FACTORS


Chinese Regulation: Although China is keen to be at the forefront of the Fin-Tech revolution, with a strong focus on Blockchain for business purposes, they do impose strict regulations on cryptocurrencies. For example, in the past year, they banned ICO sales within the country alongside unregulated cryptocurrency exchanges. Despite this, NEO places a strong emphasis on ensuring they comply with all necessary government regulations and now appeal to a global market of developers, limiting internal risk and the ability for businesses outside of China to develop on their platform.

Keeping Pace: The environment for Blockchain platforms has grown exponentially over the past year as a result of the clear success of Ethereum’s platform. Global competition is now incredibly saturated and if NEO wishes to keep pace with other platforms they must ensure that they attract the best talent to their platform. Nonetheless, with an incredibly strong brand name, an increasingly global community, significant developer bounties and by utilising a universal known coding language, the platform looks set to compete with other well-known platforms within the Blockchain ecosystem.

 

CONCLUSION


The Neo platform has positioned itself to become the world-leading provider of smart contracts for the smart economy of the future. By allowing businesses and individuals to digitalise assets, verified by their digital identity, NEO has the potential to cut out unnecessary intermediaries in the transaction of value and ownership of physical assets between parties on a global scale. The ability to program smart contracts in a variety of traditional programming languages gives NEO a real edge over many large players within the industry who require developers to learn an entirely new language. As a result, the platform has the potential to see widespread adoption by businesses and individuals who simply do not have the time or funds to learn a new language. Thus, as the global community continues to grow, NEO looks set to have a bright future ahead of itself.

 

BBOD RATING STANDARD


BUY: A low-risk buying opportunity

ACCUMULATE: An opportunity to buy a medium risk cryptocurrency at a low price

SPEC BUY: A speculative opportunity for investors with a higher risk tolerance

HOLD: Maintain current levels of position until further research is published

SELL: Investment is associated with the potential of losing capital

 

DISCLAIMER


BBOD Research is an independent cryptocurrency research-house. The company has not received any remuneration (cryptocurrency or otherwise) in preparing this analysis.

This report has been prepared solely for informative purposes and should not be the basis for making investment decisions or be construed as a recommendation to engage in investment transactions or be taken to suggest an investment strategy in respect of any financial instruments or the issuers thereof. This report has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research under the Market Abuse Regulation (EU) No 596/2014. Reports issued by Trade the Future Holding (“BBOD Research”) or its affiliates are not related to the provision of advisory services regarding investment, tax, legal, financial, accounting, consulting or any other related services and are not recommendations to buy, sell, or hold any asset. The information contained in this report is based on sources considered to be reliable, but not guaranteed, to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of this date, and are subject to change without notice. BBOD Research will not be liable whatsoever for any direct or consequential loss arising from the use of this publication/communication or its contents. Trade the Future Holding and its affiliates hold positions in digital assets and may now or in the future hold a position in the subject of this research.

 

 

 

 

Fundamental Pick: Quantstamp

 

Image result for quantstamp logo

PROVIDING MUCH-NEEDED SECURITY AUDITS FOR SMART CONTRACTS

BBOD RATING (04-10-2018)


ACCUMULATE: An opportunity to buy a medium risk cryptocurrency at a low price

 

OVERVIEW


Currency Code QSP
Transaction Start Date 21/11/2017
Total Supply 976,442,388
Circulating Supply 617,314,171
Protocol Type Application Protocol
Base Protocol Ethereum
Where To Buy Binance, Huobi, Kucoin, IDEX

 

PROBLEM TO SOLVE


Currently, the development of smart contracts is left solely in the hands of those who create a blockchain project. Although such contract creators are often highly skilled in their field, the potential for oversight of vulnerabilities in their code is highly possible as a result of a single point of failure, with only a few individuals ensuring optimal smart contract security.

The importance of auditing smart contracts efficiently cannot be understated. Without such a mechanism, projects that are backed by huge sums of investors money could be vulnerable to attack once deployed on the Ethereum network. For instance, Quantstamps whitepaper presents two notable hacks where $30 million and $55 million were respectively stolen, as a result of flaws in smart contract code. This is the exact scenario Quantstamp seeks to prevent. With the creation of new ERC-20 tokens being a continual process, and only set to increase in volume in the future, Quantstamp’s services are likely to be in high demand.

 

SOLUTION


Quantstamp aims to solve smart contract impenetrability by creating the leading decentralised protocol that will provide security auditing for smart contracts based on the Ethereum network. In essence, Quantstamp allows developers of smart contracts to submit their work to their protocol where numerous security auditors can review the contract, in order to receive QSP tokens as a bounty. The level of auditing required is set by the initial developer who pays such fees to any individual who identifies a problem within the smart contract.

As noted in Quantstamp’s whitepaper, traditional smart contract auditing is extremely expensive, costing on average $5000 and taking up to a week to complete. By spreading the workload amongst numerous security experts, Quantstamp aims to considerably lower the cost of auditing and substantially decrease the amount of time taken to complete

 

APPLICATIONS


When the project launches in Q2 2019, Quantstamp protocol will comprise of two main types of security audit. Firstly, their software verification system that is entirely automated will scan Solidity programs for bugs. The software is designed to become more intelligent over time as the result of artificial intelligence, allowing it to catch attacks of increasing sophistication. Secondly, Quantstamp will automatically provide a bounty to human participants in the form of QSP tokens who manage to find vulnerabilities in smart contract code. Human auditors receive compensation for their efforts and Quantstamps clients ensure the integrity of their cryptocurrency project.

This multifaceted approach combines the best of artificial and human intelligence to form a strong alliance to fight against any proposed security threats. Thus, clients of Quanstamp should feel much more confident in the overall strength of their network than if merely working as sole actors.

 

SUMMARY


Quantstamp seems to have uncovered a gap in the market that needs to be filled. The project has the potential to become the leading security auditing protocol. This could provide the level of trust the community needs to feel safe in investing substantial amounts of money, by confirming a project is safe from attacks that currently plague the industry. With support from Binance, already completing numerous security checks for ICO’s launched on their exchange, the project looks to have a great future ahead of itself and is certainly one to keep a close eye on.

 

CATALYSTS


  • Proven Ability: CEO Richard Ma and CTO Steven Stewart have extensive experience in software security testing and smart contract development
  • Academically Respected: The team as a whole has over 500 citations in Google Scholar regarding software security
  • Proof of Concept: Numerous successful audits have already been completed for Binance clients, indicating substantial interest in the project
  • Growing Interest: The expansion of mainstream interest in smart contracts will attract more security threats in the future that need to be addressed
  • Expanding Market: The continual introduction of new projects using smart contracts ensures an expanding target market

 

RISK FACTORS


  • Foresight: The Ethereum network may not always be the leading smart contract platform, the project could consider expanding to include Ethereum’s competitors
  • Low Supply of Able Workforce: Currently, the talent pool within the blockchain space is minimal, with demand far outstripping supply, finding enough auditors to become scalable could become an issue
  • Competition: Not the only project trying to lower the cost of smart contract development, although the projects rigorous emphasis on security is unique

 

EVENTS


  • 30th April 2019 (or earlier): Quantstamp audit network launch, as described in the whitepaper

 

CONCLUSION


In the continually evolving blockchain industry, unique problems to solve are always present yet often missed. Quantstamp’s vision to provide much-needed security to smart contracts is certainly a valid addition to the blockchain ecosystem. By decentralising auditing work and splitting traditionally expensive costs and knowledge amongst actors, Quantstamp could substantially improve the security of smart contracts moving forward, whilst providing a discounted price.

With numerous successful audits already completed for reputable firms on the Binance platform, the project has the potential to become the go-to protocol for contract creators seeking network security in years to come. As the market for smart contracts continues to grow, Quantstamp could become an incredibly lucrative endeavour for investors if this holds true. Certainly, one to keep on your radar.

 

BBOD RATING STANDARD

BUY: A low-risk buying opportunity

ACCUMULATE: An opportunity to buy a medium risk cryptocurrency at a low price

SPEC BUY: A speculative opportunity for investors with a higher risk tolerance

HOLD: Maintain current levels of position until further research is published

SELL: Investment is associated with the potential of losing capital

 

DISCLAIMER

BBOD Research is an independent cryptocurrency research-house. The company has not received any remuneration (cryptocurrency or otherwise) in preparing this analysis.

 

Bitcoin ETF Proposals Possess Substantial Market Influence

gold-colored Bitcoin on book

Before July, one could be forgiven for being confused by the prospect of a Bitcoin ETF being introduced into the cryptocurrency ecosystem. Almost three months on, however, such ETFs have become synonymous with the term Bitcoin. To claim naivety of the ETF proposals at this stage risks entirely misinterpreting current market conditions. This article aims to ensure market participants are completely aware of the facts thus far including what exactly a Bitcoin ETF entails, when they are likely to be implemented and how they will impact the overall market.

 

ETFs Defined

Exchange-traded funds, commonly known as ETFs, are a traditional investment vehicle offered on all major stock exchanges around the globe. The most notorious example of such a fund is the well-regarded S&P 500 on the New York Stock Exchange (NYSE). They allow exposure to an underlying asset or basket of assets offered in the form of a security that is proportionally represented by the funds’ shares. Most importantly, they allow exposure to a market without needing to physically hold or store the underlying asset, which is left up to the fund. For many years now, ETFs have become one of the key mainstream methods for passive investment by the masses in mainstream markets, as they are commonly associated with lower investment risks than individual stocks.

Indeed, as ETFs allow an individual to buy a basket of multiple assets, they mitigate strong price swings which individual stocks often suffer from, especially in the incredibly volatile cryptocurrency market. Any losses from assets which do not meet up to their promise are counterbalanced with assets which have performed particularly well and the growth of the overall industry during that period. Driving up the funds share price over time. The notorious investment tycoon Warren Buffett once proved the power of ETFs with a successful bet that the S&P 500 would outperform a collection of well-regarded Wall Street hedge funds over the period of a decade. His victory truly displayed to the masses the power of such funds.

 

Bitcoin ETFs Market Impact

One of the major barriers to mainstream cash inflow into the blockchain ecosystem has been the lack of institutional investors ability to purchase assets using traditional methods. Many do not understand that such market participants are simply not going to risk their hard-earned capital on unfamiliar and unregulated cryptocurrency exchanges, there is simply too much at stake. Instead, institutional money will enter the space once they can acquire cryptocurrencies without needing to hold the underlying asset, in a highly regulated and fully insured manner. Thus, for institutional investors crypto ETFs mitigate the risks of the industry whilst allowing them to profit from one of the greatest financial revolutions one will likely see in their lifetimes. Make no mistake, institutional investors want to get involved in the ongoing revolution, they simply want to do so in a highly regulated and safe fashion.

Although the impact of such institutional investors on the market will likely be of a speculatory nature in the first instance, this huge influx of money to the market will bring much-needed market exposure. The media love to shame the cryptocurrency ecosystem as much as feasibly possible, calling it a scam or a fad on a regular basis. Such institutional money would bring credibility to the entire industry and allow well-respected entities who have been quietly investing in the cryptocurrency space to come out of the woodwork and into the spotlight. Ultimately this could lead to mainstream cryptocurrency adoption long term, as a result of the perceived integrity of the industry as a whole.

 

Bitcoin ETF Calendar

Issuer Company Filing Date Status SEC Date
“Physically” Backed by Bitcoin Holdings
Winklevoss Bitcoin Shares Winklevoss Cap Mgmt 01/07/13 Denied 26/07/18
VanEck SolidX Bitcoin Trust VanEck & SolidX 05/06/18 Postponed 30/09/18
Bitwise HOLD 10 Cryptocurrency Index Fund Bitwise 24/07/18 Awaiting Approval Unknown
Derivatives Based
GraniteShares Bitcoin ETF GraniteShares 15/12/17 Denied 15/09/18
GraniteShares Short Bitcoin ETF GraniteShares 15/12/17 Denied 15/09/18
Direxion Daily Bitcoin 1.25X Bull Direxion 05/01/18 Denied 21/09/18
Direxion Daily Bitcoin 1.5X Bull Direxion 05/01/18 Denied 21/09/18
Direxion Daily Bitcoin 2X Bull Direxion 05/01/18 Denied 21/09/18
Direxion Daily Bitcoin 1X Bear Direxion 05/01/18 Denied 21/09/18
Direxion Daily Bitcoin 2X Bear Direxion 05/01/18 Denied 21/09/18
Evolve Bitcoin ETF Evolve Funds 21/09/17 Awaiting Approval Unknown

The table above displays cryptocurrency ETFs which are currently laying the foundations for their approval. Such firms are on a waiting list ready for their hearing with the U.S. Securities and Exchange Commission (SEC), who will ultimately determine their fate. The notorious Winklevoss twins fund has already been turned down for the second time as of the 26th of July. Following this, the SEC has denied a following 9 applications, predominantly from Derivatives based ETFs such as GraniteShares and Direxion. Such a decision results from their perceived inability to provide significant liquidity due to their market size, which could lead to significant market manipulation.  

Despite such dismissals, the most important ETF which market participants should be fully aware of is the VanEck SolidX Bitcoin Trust who plan to release their ‘physically’ backed ETF on the notorious Chicago Board of Options Exchange (CBOE). Recently, the SEC hearing date was postponed to the 30th of September. The CBOE has true industry influence as the largest options exchange in the world and have proven themselves in the cryptocurrency market by introducing their Bitcoin futures market in late 2017. They have meticulously studied the failures of all previous ETF denials and reviewed their application accordingly. If an ETF is likely to get approved this year, this will most likely be the one.

Despite all the hype, some sceptics suggest that ETF delays are usual, with Copper being the last ETF to pass through the SEC. With their reasoning, the likelihood of an ETF being approved in 2018 is minimal. However, regardless of whether a decision happens in the next few months or not, the market has certainly been responding rapidly to both positive and negative news. The first Winklevoss twins ETF denial news caused a flash crash which quickly corrected, whilst the delay of the major CBOE proposal caused a more prolonged fall in Bitcoins valuation. Ultimately, the market appears to be in a stalemate until a further delay, approval or disapproval occurs. The latter would likely cause a long-term downtrend, whilst an approval could see prices increase exponentially. As the 30th of September looms, the market tension builds. Be sure to have a plan for all situations to ensure one maximises or minimises the ETFs impact.

 

Centralisation Undermines The Most Fundamental Principle Of Blockchain Technology

airport-bank-board-534216.jpg

 

Blockchain technology promised users the ability to become their own bank, yet the majority of exchanges which allow individuals to purchase cryptocurrencies are entirely centralised.

This is a fundamental problem plaguing the industry currently, with centralised exchange hacks occurring on a far too frequent basis. For example, the colossal Mt. Gox hack of 850,000 BTC, Bitfinex’s loss of 120,000 BTC and more recently the Bithumb breach, the 5th largest exchange by volume at the time. Such events indicate that no matter how established the exchange, there is always a possibility of being infiltrated by hackers, after all this may be the most profitable heists of all time, as Bitcoin continues to increase in value.

The problem here is simple, just like with traditional institutions, all of your money is held in one or several accounts, which can easily be targeted by hackers to great effect. A single point of failure.

Whilst traditional firms have heavy measures in place to avoid such attacks, they are still vulnerable. Yet at least such firms provide consumers with reassurance, if your funds are stolen, they will be replaced. This is not the case with the majority of cryptocurrency exchanges, someone hacks the exchange, you lose your entire account. Will you get refunded? Maybe. When? Who knows.

Surely there must be a solution to such a problem, after all, can you really call yourself a proponent of blockchain technology when you may as well be handing over your precious money to a central bank. Let us consider our options.

 

How Fully Decentralised Exchanges Work Using Blockchain Technology

 

THE IDEAL

Dissimilar to centralised exchanges, decentralised exchanges are not controlled by one single entity. Instead, they are distributed over the entire Blockchain network that they utilise. This ensures that a decentralised exchange does not possess any of their customers’ funds or information and so are impossible to hack or shut down. They simply match trade orders for consumers by utilising a certain blockchains smart contract system. Thus, entirely decentralised exchanges live up to the libertarian promise of a free society where individuals are their own bank and they inherently avoid censorship from any third parties such as governments seeking to seize control. Pretty awesome right? Why aren’t they used more often then?

 

THE REALITY

Usability

First, they are difficult to use for the consumer, with the high barriers to entry in the Blockchain space already, centralised companies like Coinbase have thrived from attracting new money through their simple user interfaces and user experiences. No need for understanding a public or private key, just connect your bank account and buy some crypto. Unfortunately, this approach is far more appealing, who wants to understand how the technology works as long as it functions? Early adopters perhaps, but not the majority. Here we are again at square one, with our funds in the control of a centralised authority.

 

Functionality

Second, decentralised exchanges offer limited functionality compared to their centralised competitors.  Unfortunately, entirely relying on distributed networks has not yet allowed exchanges to offer certain essential trading utilities such as stop losses and limit orders, two things the majority of traders simply cannot function without. Additionally, the number of different cryptocurrencies on offer are often largely limited to a select few as result of the point to follow.

 

Lack of Liquidity

The shortcomings of usability and functionality lead to decentralised exchanges not being able to encourage the trade volume necessary for an exchange to function as it should. There are often difficulties finding a counterparty to match one’s trade order, resulting in missed opportunities and aggravated traders. The less liquid the cryptocurrency in general, the less likely one will find a counterparty to complete their trade.

 

THE STATUS QUO

At first glance of the ideal, one might question why most exchanges who supposedly support a decentralised future are living in the centralised present.  But after thorough analysis, it is clear that Blockchain technology and its ecosystem simply isn’t ready to handle the complex functionality and underlying usability that traders desire. Maybe in years to come full decentralisation will be feasible, a world we should all strive to live in, but for now, it simply isn’t.

So, how can one be in control of their own funds whilst enjoying the complexities and subtleties of centralised trading? Enter the hybrid trading model.

 

Hybrid Trading

This model brings with it the best features of both the decentralised and centralised models. One can become their own bank and possess sole control of their funds whilst enjoying the functionality and usability of centralised platforms. No more exchange hacks, no authoritarian governments have the ability to seize funds or close accounts, complete financial freedom. Integrate such liberty with powerful means to profit from one of the biggest financial revolutions in human history and you are onto a winning combination. So how is this all possible?

 

Decentralised Custody

First one must understand the concept of decentralised custody. Utilising Blockchains that allow for the creation of smart contracts, Hybrid Trading Platforms, such as BBOD, merely settle profit and loss from a personal distributed wallet by employing the functionality of smart contracts. Here, one creates a set of defined rules which auto-complete when such rules are met. In this case, settle profit and loss every 24 hours between different counterparties.

Such personal wallets are inherently impenetrable as they are distributed over the entire chosen Blockchain ecosystem, BBOD utilises Ethereum’s. In order to hack one account, you would have to hack every account simultaneously, much like the Blockchain itself, an impossible feat when networks are distributed over millions of computers.

Thus, BBOD users become completely in control of their own funds in an incredibly secure decentralised manner and can choose to withdraw money from their personal wallet at any time.

 

Centralised Trading Engine

Second, one must understand the concept of a centralised trading engine. Here transactions are settled off-chain utilising the mechanism commonly used on centralised exchanges. For instance, BBOD utilises a custom trading engine built by well-respected GMEX, which can handle more than a million transactions per second with latency of less than 25 microseconds.

Essentially this ensures lightning fast transaction speeds between parties, avoiding the pitfall of the functionality of decentralised exchanges. Additionally, BBOD’s user-interface is extremely user-friendly allowing traders of all levels to utilise the platform.

 

CONCLUSION

This article has discussed the pitfalls of centralised exchanges, the pro and cons of fully decentralised exchanges and the overwhelming benefits of hybrid trading platforms, such as BBOD.

Now one must ask themselves how much trust they want to place in the hands of centralised exchanges. Do you want to be a victim of the next centralised hack? Blockchain technology has afforded us the ability to be in control of our own funds, so why not utilise this capability for the security and freedom that it allows.

BBOD offers users financial freedom and the opportunity to get involved in the ever-evolving cryptocurrency revolution. Be sure to make the most of being an early adopter.

 

 

How Do Ethereum Smart Contracts Work

smart contracts.jpeg

 

Most of us must have used the term ‘Smart Contracts’ in a blockchain discussion with colleagues or friends without completely realising the impact Smart Contracts can have on the entirety of the socio-economic framework our society thrives on.

We have mentioned multiple times in this blog that Blockchain as a technology is revolutionary.

We refrain from calling ourselves maximalists of any particular cryptocurrency. Rather, you may call us blockchain/crypto maximalists.

Coming back to the topic at hand, you may already know by now what Blockchain is and how it works. If not, feel free to read our previous blog posts. Now, let us delve into a more intriguing topic of what are smart contracts.

 

What are smart contracts

Quoting Wikipedia,

“A smart contract is a computer protocol intended to digitally facilitate, verify, or enforce the negotiation or performance of a contract. Smart contracts allow the performance of credible transactions without third parties. These transactions are trackable and irreversible.”

The above definition basically states that smart contracts as the name suggests are contracts that can be programmed, verified without third parties, are trackable and are immutable unless explicitly mentioned in the contract.

There are numerous blockchain platforms that let you create custom smart contracts for varied use cases. Some of them are Ethereum, Hyperledger fabric, R3 Corda, Stellar, Achain, etc.

 

How do smart contracts work

We will now try to understand smart contracts right from its inculcation.

Smart Contracts were first introduced by cryptographer and Computer Scientist Nick Szabo in 1994. A rough idea of smart contracts could be understood by analysing vending machines. You select a particular snack and enter the appropriate amount into the machine, the snack then presents itself to you. Just like that, magic.

However, sometimes the machine fails (mainly because of poor programming and centralisation), something which is tackled very efficiently when it comes to blockchain.

A Smart Contract needs several mathematical moving parts for it to function seamlessly.

  1. A Blockchain platform – for it to perform and verify transactions on chain
  2. Public Keys and Private Keys – the Smart Contract must have access to the private keys that it plans on controlling.
  3. Conditions – Clear conditions must be defined by the Smart Contract so that relevant transactions are carried out. (a simple if loop on the blockchain)

Smart Contracts are highly beneficial in a wide variety of domains as they let you create contracts that are secure, fast and are standardized for numerous use cases.

The use cases of smart contracts are so vast that we would probably need more than one post to elaborate on each of them. However, we will try to cover as much as possible in one post.

We will define this with 3 different examples that will adopt Smart Contracts in growing stages.

  1. Minimal
  2. Partial
  3. Complete

Let’s take a real-life scenario where smart contracts could possibly be used in the near future. In this example, we will consider Uber. Uber, as we all know, are disruptors of traditional taxis and are probably the largest cab hailing service in the globe. Smart Contracts potentially have the capability of disrupting this disruptive service.

 

Minimal

In this scenario, we will modify the payment system that Uber uses after completing a ride. You will ideally link your credit card to Uber which automatically deducts the fees when your ride completes.

If you do not prefer digital money, you will pay cash to the Uber driver based on the amount that shows up on your phone. Uber runs an algorithm that calculates how much fees should be charged to the rider based on the distance covered and the traffic/wait time.

Now, this can be completely automated if linked with a smart contract.

At the end of each ride, Uber will send a message to the smart contract linked with your profile and the appropriate amount gets deducted seamlessly. This use case is much similar to current day credit cards, however, Smart Contracts are more secure.

 

Partial

In the Partial scenario, we take the application of Smart Contracts up a notch and eliminate human drivers completely.

With the innovation Tesla, Uber and Google are doing on the grounds of self-driving cars, it isn’t long until you see self-driving private cars and cabs doing everyday rides on the freeway.

Now, imagine you book an Uber and it turns up to be a self-driving car. At the end of your ride, a Smart Contract can be programmed such that the fees charged are deducted directly from your crypto wallet and only after the payment of fees, will the doors of the cab open.

The Uber cab may have one or many owners and the fees will then get transferred to their accounts based on the logic written in the smart contract.

 

Complete

Now, this scenario is utopian and far-fetched but the possibilities of this happening cannot be outright denied.

In this scenario, an Uber is not owned by anyone but itself. The car in and of itself is a decentralised autonomous entity. This concept is adapted from ‘Internet of Money’ by Andreas Antonopoulos. (Highly recommended read)

Consider a self-driving car that has no owner. All the rides that it takes go towards the maintenance and fuel costs that it has to undertake. It saves the excess money for major upgrades or unforeseen circumstances.

But the car essentially has no owner and all the money it gets from rides can be used for varied purposes, all determined purely by the car on its own.

When you hail a ride from such a vehicle, at the end of each ride, the smart contract automatically deducts money from your wallet and sends it to the DAE (Decentralised Autonomous Entity), which is your Uber in this case.

The Uber then uses the same money for fuel or maintenance which again makes the use of Smart Contracts.

Uber or self-driving cars is one such example. You can put numerous transactions on the Smart Contract, including real estate transactions.

Smart contracts have use cases in everyday lives. Things you couldn’t imagine without the internet now; in the future, you wouldn’t imagine it without Smart Contracts!

Another real-life use case of Smart Contracts is how BBOD settles transactions on your Ethereum wallet.

We run a proprietary non-custodial smart contract using which you can trade on BBOD without transferring funds to the central wallet. Your funds stay safe in your very own Ethereum wallet.

We hope this blog post gave you a brief idea of how Smart Contracts work. In future posts, we will explore more in and around the blockchain ecosystem. Stay tuned!

 

Ethereum White Paper, Explained. Part 2

We are glad you made it to the second part of our dissection of the ethereum white paper. Read on to uncover the rest of the ethereum white paper document.

Ethereum White Paper Format.png

Ethereum was built around the central focus of creating a protocol for building a variety of decentralized applications with numerous use cases.

They provide a Turing complete programming language where development time, security and interaction between dapps (decentralized apps) are important. A Turing complete programmable blockchain allows a wide variety of smart contracts to be developed which are much more sophisticated than those offered by Bitcoin.

Ethereum Philosophy

Ethereum is designed on the following five principles.

Simplicity

Ethereum is built as a protocol that is simple and has a vision of being open to all, even at the

cost of data storage and time inefficiency. Any average programmer should be able to pick the

workflow and implement projects with ease.This helps in fully realizing the unprecedented

potential of Blockchain and Cryptocurrency.

Universality

The Turing completeness of Ethereum helps in creating any smart contract that can be

mathematically defined. Currency, financial derivatives or your very own Skynet, anything can be built. However if you do plan on building Skynet, you might need to have an array of many interlocking contracts and feed them with enough gas to keep the smart contract running.

Modularity

Ethereum is designed such that all parts of the protocol can be separated into individual units. Even if somebody makes a small protocol modification in one place, other parts of the application stack would be seemingly unaffected and continue to work without further modification.

Innovations like Ethash, modified Patricia trees and RLP (which will be discussed in future posts) are implemented as separate, feature complete libraries. Ethereum development is done so as to benefit the whole cryptocurrency system rather than just itself.

Agility

Constructs of the Ethereum protocol are not set in stone, although modifications to high-level constructs will only be done judiciously.

Non-discrimination and non-censorship

Being a true open for all protocol, any and all kinds of applications can be developed using Ethereum. The regulatory mechanisms used in Ethereum are used to restrict and minimize the harm to the ecosystem rather than restrict a specific category of applications.

For instance, you can run an infinite loop script as long as you pay necessary and relevant charges to the miners for running your code.

Ethereum Accounts

In Ethereum, the state is made up of objects called “accounts” where each account has a 20-byte public address. State transitions are transfers of value and information between two or more accounts. An Ethereum account contains the following four fields.

  • Nonce; this is a counter that ensures each transaction can only be processed once
  • The account’s current Ether balance
  • The account’s Contract code, (if present, applicable to smart contracts)
  • The account’s Storage (empty by default)

Ether is the main fuel used in Ethereum and is used for transaction fees also known as Gwei.

There are two types of accounts namely :

  1. Externally owned accounts; controlled by Private keys : Have no inherent code. Messages are sent by creating and signing a transaction.
  2. Contract accounts; controlled by Contract code : Code activates depending on the content of the received message and further process like reading & writing into internal storage, sending other messages or creating contracts can be activated.

The second type of account is used by a cryptocurrency exchage :Blockchain Board of Derivatives in its non-custodial smart contract wallet system.

Smart contracts are thus autonomous agents that live inside the Ethereum environment and execute code when conveyed by a transaction or a message. Such contracts have direct control over their ether balance and their own key store.

Transactions

Transaction in Ethereum is essentially a signed and encrypted data package that stores a message to be sent from an externally owned account.

Typical transactions contain the following:

  • The recipient of the message (Public Key of the recipient)
  • Signature identifying the sender (Private Key of the sender)
  • The amount of ether to transfer from the sender to the recipient
  • An optional data field
  • A STARTGAS value, representing the maximum number of computational steps the transaction execution is allowed to take
  • A GASPRICE value, representing the fee the sender pays per computational step

Let us break down these individual points. The first three are standard fields present in every cryptocurrency. The data field has no default function but can be used by a contract to access the data. For instance, if a contract is functioning as a domain registration service, then it may wish to interpret the data being passed to it as containing two “fields”, the first field being a domain to register and the second field being the IP address to register the domain to. The contract would read these values from the message data and appropriately place them in storage.

STARTGAS and GASPRICE fields are crucial for Ethereum’s anti-denial of service model. In order to prevent infinite loops or other computational wastage, each transaction is required to set a limit to the number of computational steps it can use. The fundamental unit of computation is “gas”. Usually, a computational step costs 1 gas, but some operations cost higher amounts of gas because they are more computationally expensive or increase the amount of data that must be stored as part of the state.

There is a fee of 5 gas for every byte in the transaction data. The fee system causes an attacker to pay proportionately for every resource that they consume, including computation, bandwidth and storage. Hence, any transaction that leads to high network consumption naturally leads to a higher gas fee.

In simple terms, gas paid is directly proportional to the number and complexity of computations done on the blockchain.

Messages

Contracts can send messages to other contracts.

Typical messages contain:

  • The sender of the message
  • The recipient of the message
  • The amount of ether to transfer with the message
  • An optional data field
  • A STARTGAS value

A message is similar to transaction except that messages are created by a contract and not an externally owned accounts. A message is produced when a contract executing code executes the CALL opcode, producing and executing a message.

The message is received by the recipient account which then runs its code. In this manner, contracts can enact in relationships with other contracts in a way similar to externally owned accounts.

The gas allocation assigned by a contract applies to both the gas consumed by transaction and all sub-executions.

Let us understand the same with an example.

@A is an externally owned account

@B is a contract

@A sends @B a transaction with 1000 gas.

@B consumes 600 gas and sends a message to @C.

The internal execution of @C consumes 300 gas.

1000-600-300=100

This implies that the contract @B can only spend another 100 gas on computation / message / transaction before running out of gas.

Ethereum State Transition Function

eth paper 2.2.PNG

As mentioned in part 1 of the series, you might recall the state transition function

APPLY(S,TX) -> S’

Further steps are taken from the white paper and are pretty much self-explanatory:

  1. The transaction must have the right number of values, the signature must be valid and the nonce should match the nonce in the sender’s account. If it does not comply, throw an error.
  2. The transaction fee is calculated as STARTGAS * GASPRICE, the sending address can be determined from the signature. Subtract the fee from the sender’s balance and increment the sender’s nonce. If there is not enough balance to spend, throw an error.
  3. Initialize GAS = STARTGAS, and a certain quantity of gas per byte is taken off to pay for the bytes in the transaction.
  4. Transfer the transaction value from the sender’s account to the receiving account. If the receiving account does not yet exist, create it. If the receiving account is a contract, run the contract’s code either to completion or until the execution runs out of gas.
  5. If the value transfer failed because the sender did not have enough money, or the code execution ran out of gas, revert all state changes except the payment of the fees, and add the fees to the miner’s account. The payment of fees cannot be reverted as miner expends energy to facilitate the transaction.
  6. Otherwise, refund the fees for all remaining gas to the sender, and send the fees paid for gas consumed to the miner.

Assume the contract code to be the following:

if !self.storage[calldataload(0)]:
self.storage[calldataload(0)] = calldataload(32)

The contract is actually written in low-level EVM code but the above example is written in Serpent.

Now let us consider an example:

The contract’s storage is initially empty and a transaction is sent with 10 ether value, 2000 gas, 0.001 ether gasprice, and 64 bytes of data, with bytes 0-31 representing the number 2 and bytes 32-63 carrying the string CHARLIE.

The state transition function process in this scenario is as follows. These steps are similar to the ones mentioned in the generic example above.

  1. Check that the transaction is valid and well-formed.
  2. Check that the transaction sender has at least 2000 * 0.001 = 2 ether. If it is, then subtract 2 ether from the sender’s account. (Since we have to use STARTGAS * GASPRICE as the formula)
  3. Initialize gas = 2000; assuming the transaction is 170 bytes long and the byte-fee is 5, subtract 850 (170*5) so that there is 1150 (2000-850) gas left.
  4. Subtract 10 more ether from the sender’s account, and add it to the contract’s account.
  5. Run the code. In this case, this is simple: it checks if the contract’s storage at index 2 is used, notices that it is not, and so it sets the storage at index 2 to the value CHARLIE. Suppose this takes 187 gas, so the remaining amount of gas is 1150 – 187 = 963
  6. Add 963 * 0.001 = 0.963 ether back to the sender’s account, and return the resulting state.

This concludes the steps that are undertaken in the whole process.

If there was no contract at the receiving end of the transaction, then the total transaction fee would simply be equal to the provided GASPRICE multiplied by the length of the transaction in bytes, and the data sent alongside the transaction would be irrelevant.

In this case, all gas would be utilized by a miner to provide no result as any contract does not exist.

Messages and transactions work on similar terms when it comes to reverts: if a message execution runs out of gas, then that message’s execution, and all other executions triggered by that execution, revert, but parent executions do not need to revert.

This implies that it is “safe” for a contract to call another contract as if A calls B with G gas then A’s execution is guaranteed to lose at most G gas. However, parent executions outside of contracts do not revert.

Also, there is an opcode, CREATE, that creates a contract. Its execution mechanics are generally similar to CALL, with the exception that the output of the execution determines the code of a newly created contract.

We will delve into opcode in further detail in our future in-depth technical blog posts.

Code Execution

The code in Ethereum contracts is written in a low-level, stack-based bytecode language, referred to as “Ethereum Virtual Machine code” or “EVM code”. EVM code is essentially a series of bytes and each byte is an operation.

“Code execution is an infinite loop that consists of repeatedly carrying out the operation at the current program counter (which begins at zero) and then incrementing the program counter by one, until the end of the code is reached or an error or STOP or RETURN instruction is detected.”

The operations have access to three types of space in which to store data:

  1. Stack, a last-in-first-out container to which values can be pushed and popped like a typical stack.
  2. Memory, an infinitely expandable byte array.
  3. Storage, a key/value store. Unlike stack and memory, which resets after computation ends, storage persists for the long term.

The code also has the ability to access the value, the sender, the data of the incoming message and the block header as well. The code can also return a byte array of data as output.

The execution model of EVM code is quite simple. We will further explore it in the below steps.

While the Ethereum virtual machine is running, its full computational state can be defined by the tuple. A tuple consists of block_state, transaction, message, code, memory, stack, pc and gas.

Here, block_state is the global state containing all accounts and includes balances and storage.

At the start of every round of execution, the current instruction is found by taking the pc-th byte of code (or 0 if pc >= len(code)) which means pc is considered to be zero when it is greater than or equal to the length of the code.

Each instruction has its own definition on how it would affect the tuple.

ADD pops two items off the stack, pushes their sum, reduces gas by 1 and increments pc by 1 (typical working of a stack)

SSTORE pops the top two items off the stack and inserts the second item into the contract’s storage at the index specified by the first item.

There are many ways to optimize EVM execution via just-in-time compilation, a basic implementation of Ethereum can be done in a few hundred lines of code.

Blockchain and Mining
eth paper2.3.PNG

Ethereum blockchain is more or less similar to the Bitcoin blockchain with a few subtle differences.

The main difference between Ethereum and Bitcoin with regard to the blockchain architecture is that, unlike Bitcoin (which only contains a copy of the transaction list), Ethereum blocks contain a copy of the transaction list, the most recent state, the block number and the difficulty.

The basic block validation algorithm in Ethereum can be explained in the following steps:

  1. Check if the previous block referenced exists and is valid.
  2. Check that the timestamp of the block is greater than that of the referenced previous block and less than 15 minutes into the future.
  3. Check that the block number, difficulty, transaction root, uncle root and gas limit (various low-level Ethereum-specific concepts which will be covered later) are valid.
  4. Check that the proof of work on the block is valid.
  5. Let S[0] be the state at the end of the previous block. (recall this being discussed and explained in the previous blog post)
  6. Let TX be the block’s transaction list, with n transactions. For all i in 0…n-1, set S[i+1] = APPLY(S[i],TX[i]). If any applications returns an error, or if the total gas consumed in the block up until this point exceeds the GASLIMIT, return an error.
  7. Let S_FINAL be S[n], but adding the block reward paid to the miner (S_FINAL =S[n]+Block reward). The reward is awarded once a miner completes mining a block successfully.
  8. Check if the Merkle tree root of the state S_FINAL is equal to the final state root provided in the block header. If it is, the block is valid; otherwise, it is not valid. (Merkle tree and validation with the block header is explained with relevant pictures in the previous blog post)

The approach of storing the entire state within each block might seem inefficient at first but is comparable to that of Bitcoin.

The state is stored in the tree structure and after every block, only a tiny part of the tree needs to be changed. This implies that between two adjacent blocks, the vast majority of the tree should be the same. The data can be stored once and referenced twice using pointers (hashes of subtrees).

A special kind of tree known as a “Patricia tree” is used to accomplish this, including a modification to the Merkle tree concept that allows for nodes to be inserted and deleted in an efficient manner.

Additionally, because all of the state information is part of the last block, there is no need to store the entire blockchain history.

A commonly asked question is “where” contract code is executed, in terms of physical hardware.

The process of executing contract code is defined in the state transition function itself, which is part of the block validation algorithm. If a transaction is added into block B the code execution spawned by that transaction will be executed by all nodes that download and validate block B, either now or in the future.

This marks the end of Part 2 of the Ethereum white paper. In the next part, we will discuss real-time applications of the Ethereum protocol and the ecosystem.

Part 3 available here.