Ethereum White Paper, Explained. Part 1

In the following blog posts, we will be dissecting the Ethereum white paper by describing it in layman terms. As the paper is too long to fit into one blog post, we will be dividing it into several sections. We will try to explain the niche details mentioned in the Ethereum white paper in the simplest terms possible.

Ethereum White Paper Format.png

 

Introduction and Existing concepts


We all know that Satoshi Nakamoto’s development of Bitcoin gave rise to the monumental technology known as – Blockchain. Hopefully, you already know what Blockchain technology is, thanks to our previous posts.

There are numerous other applications for Blockchain technology some of them include: coloured coins, smart property, namecoin, smart contracts or DAO (Decentralised Autonomous Organizations). These applications are complex to build on top of the Bitcoin blockchain. To address this issue, Ethereum proposes a Turing-complete programming language that can be used to create smart contracts or encode complicated functions. A Turing-complete language can essentially be used to simulate a Turing machine. A Turing machine is a model that can simulate any computer algorithm regardless of the complexity.

The Ethereum foundation proposes that all of the above can be achieved effortlessly in a few lines of code. We will validate this claim further in this blog and future posts.

 

History


Digital currencies as a concept have been prevalent for decades. In the 80s and 90s, a cryptography technique called Chaumian Blinding was used. However, they relied on a centralised intermediary which was a clear deal breaker. Then came B-money which proposed a decentralized consensus system but how that would be achieved was debatable. This was followed by Hal Finney proposing reusable proofs of work which when combined with the concept of B-money seemed promising at first but attempts to implicate such a solution were unsuccessful.

Satoshi Nakamoto collated all of these concepts along with other established primitive technologies for managing ownership through cryptography techniques. The consensus algorithm used by the Bitcoin Blockchain to keep track of the coins is called proof of work.

The proof of work consensus mechanism was a major breakthrough in this area as it solved two main problems.

  1. Nodes in the network could now easily agree on using the consensus algorithm to enter transactions in the distributed ledger.
  2. The problem of who gets to decide the entry into the distributed ledger was solved by using the computing power each node is willing to spend.

For miners, this essentially means – More computing power = More blocks mined = More crypto rewards.

Another concept called proof of stake calculates the weight of a node in the voting process based on the number of coins it holds and not just computational resources.

 

State transition systems


The ledger of any cryptocurrency is essentially a state transition system which at any given point in time holds information about how many coins are there in individual wallets and the transactions done by these wallets.

In the below diagram there are three main blocks to be considered

 

 Image Courtesy: https://github.com/ethereum/wiki/wiki/White-Paper

 

State – This consists of all ownership information contained in the ledger which is cryptographically encrypted.

Transaction – Transaction block defines the amount of the transfer that is initiated in the system. It also includes a signature which is defined by the sender.

State’ – This state consists of the final ownership information that is distributed across all nodes. This State’ will then act as State in the next transaction.

In a traditional fiat banking setting, the states are individual balance sheets and when money is sent from A to B, their individual records get updated.

Obviously, using traditional banks we cannot send more money than we have in our individual accounts, a similar logic has been applied here which is defined by the following function.

APPLY(S,TX) -> S’ or ERROR

To illustrate this in the context of the banking example, we can translate it into the following expression.

CRYPTO

APPLY(S,TX) -> S’

BANKS

APPLY({ Alice: $50, Bob: $50 },”send $20 from Alice to Bob”) = { Alice: $30, Bob: $70 }

Here S is the initial state where both Alice and Bob have $50 in their accounts.

TX is the transaction which defines “send $20 from Alice to Bob”

S’ is the final state which reflects the updated balances of Alice and Bob

Before moving to the next scenario, we must understand how the possession of coins in individual accounts is calculated.

A bitcoin “state” has the collection of all coins that exist along with the public key of their owner. The collection of these coins are determined by total UTXO associated with the address. UTXO is Unspent Transaction Outputs, which as the name suggests have not been spent by the owner. These outputs are measured by checking if the coins that came from the previous owner were also UTXO, to begin with. This is confirmed by checking the previous owner’s UTXO and pairing it with the cryptographic signature produced by the previous owner’s private key.

Now let us analyse what happens if you try selling coins that you don’t have?

CRYPTO

APPLY(S,TX) -> ERROR

BANKS

APPLY({ Alice: $50, Bob: $50 },”send $70 from Alice to Bob”) = ERROR

1. Check the value mentioned in TX ($70)

a.    If this value is not verified by UTXO of the owner, then it is not present in their account. Return an error.

b.    If the mentioned cryptographic signature does not match the signature of the owner, return an error.

2.     If the sum of all UTXO of the owner is less than the figure mentioned in TX, return an error.

3.    If the transaction is valid, transfer funds to the receiver. This transfer happens by removing the input UTXO from the sender and adding it under the receiver’s public key address.

Step 1a prevents the sender from sending coins that do not exist and step 1b prevents senders from sending other people’s coins.

Step 2 makes sure that there are enough coins with the sender before proceeding with the transaction.

Step 3 completes the process by subtracting values from the sender and adding it in the receiver’s wallet.

Now, these steps might look easy to visualize but behind the scenes, there is a lot going on.

The following example should help you better understand.

Suppose you go out to buy a bunch of Bananas. Now for some vague reason, 1 banana costs $75. In a traditional setup, to see if you can afford this precious overpriced banana, you will open your wallet and check the balance. You have two notes of $50 each totalling $100 (50+50=100, duh!). These two notes were given to you by your mom to buy Bananas.

To be able to afford this Banana you have to give away both your $50 notes to the Banana seller and he will return $25 using a combination of USD note denominations. You are now a proud owner of this super expensive Banana. The real problem that now lies ahead of you, is explaining to your mom the price of 1 Banana.

This is reasonably simple to understand, now let us see what happens in a typical cryptocurrency transaction.

Consider Alice wants to send 75 BTC (yes, Alice is filthy rich) to Bob. To proceed she will first check if she has 75 BTC in her wallet. To check this, she must sum up all of her UTXO (value inputs). Consider this UTXO as the two notes of $50 in the previous example. However, Alice has two UTXO values in her wallet of 50 BTC each. This implies that Alice has received two transactions into her wallet. Each UTXO is worth 50 BTC.

Now, we know that you cannot cut a $100 note into two parts to divide into two $50 notes, that would render the $100 note worthless. However, in cryptocurrency, you can do microtransactions by dividing 1 coin into ten 0.1 coins. This division is, however, not straightforward.

To transfer 75 BTC to Bob, Alice will create a transaction with the two 50 BTC inputs to give out two outputs. One output will be given to Bob, another balance will be transferred back into Alice’s wallet.

50BTC + 50BTC → 75BTC to Bob + 25BTC to Alice

In this scenario, Bob is not entrusted with returning the balance as compared to the previous example. Rather the transaction handles the return of the remaining balance output to Alice.

 

Mining


 Image Courtesy: https://github.com/ethereum/wiki/wiki/White-Paper

In an ideal society where we could trust a centralized system with all transactions, this step would be totally unnecessary. But we are trying to create a decentralized consensus system that has the potential to disrupt the monopoly that banks have over our economies. Mining is a method by which we can combine the state transition system with a consensus system such that all nodes in the network agree on the transactions. These transactions are combined and packaged into blocks as shown in the below figure.

The Bitcoin network produces 1 block every 10 minutes. Each block has a timestamp, a nonce (an arbitrary non-repeatable number), a reference to the previous block mentioned as Prevhash in the above diagram and the list of all transactions that have taken place after the previous block is mined. This never-ending chain of blocks always represents the latest state of the distributed ledger and thus acquires its name – the Blockchain.

The following steps check the validity of a block:

  1. Check if the previous block referenced by the block exists and is valid.
  2. Check that the timestamp of the block is greater than that of the previous block and less than 2 hours into the future.
  3. Check that the proof of work on the block is valid.
  4. Let S[0] be the state at the end of the previous block.
  5. Suppose TX is 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 application returns an error, exit and return false.
  6. Return true, and register S[n] as the state at the end of this block.

Points 1 to are straightforward. However, the next 3 points might sound a bit confusing. Let us understand how that works.

As mentioned in point 4, let S[0] be the state at the end of Block 5624.

In point it is mentioned that for each n transaction, there is a particular state as follows:

So by the function →  S[i+1] = APPLY(S[i],TX[i])

We have the following:

S[1] = APPLY(S[0],TX[0]) ← First transaction

S[2] = APPLY(S[1],TX[1]) ← Second transaction

.

.

S[n] = APPLY(S[n-1],TX[n-1]) ← nth transaction

If you remember the function that we read about in the previous topic. We should be able to backtrack the value of S’ based on the Apply function.

APPLY(S,TX) -> S’

This is predominantly used to link various transactions and blocks. So each transaction in the block defines a valid state transition using the above functions from one transaction to another. The state, however, is not stored anywhere in the block and is calculated correctly only by starting from the genesis state of that particular block, for every transaction in that block. This finally gives an output of S[n] which will act as S[0] for the next block.

The order of the transactions is of prime importance because if B creates a transaction involving funds (UTXO) that have been sent (created) by A, then the transaction done by A must come before B for the block to be valid.

The condition of proof of work required is that the double-SHA256 hash of every block which is a 256-bit number must be less than a dynamically adjusted target. These dynamic targets vary from time to time so that the miners provide ample computational power to confirm their proof of work. Also, since the SHA256 function is completely pseudo random and unpredictable, the only way to crack it is by simple trial and error or brute force.

Suppose the dynamic target is set at ~2150 , then the network must achieve an average of 2(256-150) which equals 2106 tries before a valid block is found. This dynamic target is reset every 2016 blocks and calibrated to new target value. A new block on an average is produced every ten minutes on the Bitcoin network. For all the heavy lifting that miners do by facilitating our transactions and solving complex math problems, they are given Bitcoins as reward. The initial reward was 25 BTC per block mined. Currently, the reward is 12.5 BTC per mined block. This is how bitcoins come into circulation. The Bitcoins awarded to miners are new bitcoins that are being unlocked from the 21,000,000 Bitcoins which is the hard limit of Bitcoins that can ever be in circulation.

 

WHAT HAPPENS IN THE EVENT OF AN ATTACK?


Now let us analyse the benefits of mining and how it prevents attacks. The following lines have been picked from the Ethereum white paper as the text is pretty much self-explanatory.

“The attacker’s strategy is simple:

  1. Send 100 BTC to a merchant in exchange for some product (preferably a rapid-delivery digital good)
  2. Wait for the delivery of the product
  3. Produce another transaction sending the same 100 BTC to himself
  4. Try to convince the network that his transaction to himself was the one that came first. 

Once step (1) has taken place, after a few minutes some miner will include the transaction in a block, say block number 270. After about one hour, five more blocks will have been added to the chain after that block, with each of those blocks indirectly pointing to the transaction and thus “confirming” it. At this point, the merchant will accept the payment as finalized and deliver the product; since we are assuming this is a digital good, delivery is instant. Now, the attacker creates another transaction sending the 100 BTC to himself. If the attacker simply releases it into the wild, the transaction will not be processed; miners will attempt to run APPLY(S,TX) and notice that TX consumes a UTXO which is no longer in the state. So instead, the attacker creates a “fork” of the blockchain, starting by mining another version of block 270 pointing to the same block 269 as a parent but with the new transaction in place of the old one. Because the block data is different, this requires redoing the proof of work. Furthermore, the attacker’s new version of block 270 has a different hash, so the original blocks 271 to 275 do not “point” to it; thus, the original chain and the attacker’s new chain are completely separate. The rule is that in a fork the longest blockchain is taken to be the truth, and so legitimate miners will work on the 275 chain while the attacker alone is working on the 270 chain. In order for the attacker to make his blockchain the longest, he would need to have more computational power than the rest of the network combined in order to catch up (hence, “51% attack”).

The above text shows how to gain control over the blockchain, the attacker has to have more processing power than 51% of the total blockchain which is probabilistically impossible for top coins.

 

Merkle Trees


 Image Courtesy: https://github.com/ethereum/wiki/wiki/White-Paper

Merkle trees help maintain the uniqueness of a block. Merkle trees are a binary tree where each node has two children, and this goes all the way to the bottom to have individual leaf nodes which consists of transaction data. These leaf nodes build up to the top as shown in the below figure and end up in one ‘hash’. This hash of a block consists of a timestamp, nonce, previous block hash and the root hash of the Merkle tree as shown in the image on the left.

Now, the beauty of cryptographic functions is, even if one bit of input is changed, the whole encryption pattern changes and the intermediate hash value output is different. This changes the hash value output of the overall block and is rejected by the blockchain because it does not have a valid proof of work. The output of a Merkle tree is a single hash which is secure enough to act as an assurance to nodes.

These nodes compare this hash from one source with another small part of the Merkle tree from another source to ultimately validate the authenticity of the block. A similar scenario is shown in the right side of the above image when a node rejects a block because its hash does not match with the data in Merkle tree.

As the data stored in the blockchain of bitcoin is continuously increasing, there will be a point at which average desktop computers would not be able to store all the data. This is where a protocol known as “simplified payment verification” (SPV) comes into play. This protocol lets nodes verify the proof of work using the hash in individual blocks. Such nodes are also called as ‘light nodes’. These light nodes download the block headers, verify the proof of work on the block headers, and then download only the “branches” associated with transactions that are relevant to them. Light nodes thus assure that the transactions are legit despite downloading only a very small portion of the blockchain.

 

Alternative Blockchain Applications


  1. NameCoin
    NameCoin lets you register names on a decentralized database.
  2. Colored coins
    Colored coins serve as a protocol to allow people to create their own digital currencies on the Bitcoin Blockchain.
  3. Metacoins
    Metacoin protocol is stored on top of Bitcoin but uses a different state transition function from Bitcoin. They provide a mechanism to create an arbitrary cryptocurrency protocol.

There are two ways to build a blockchain system. The first is building an independent network and the second includes building a protocol on top of Bitcoin. The first approach is difficult to implement because of the costs involved. Also, the number of applications that would run on the Blockchain do not demand a full-fledged independent network. The requirements of these applications are relatively less computer intensive.

The Bitcoin-based approach has the flaw that it does not inherit the simplified payment verification features of Bitcoin. SPV works for Bitcoin because it can use blockchain depth as a proxy for validity; at some point, once the ancestors of a transaction go far enough back, it is safe to say that they were legitimately part of the state. A fully secure SPV meta-protocol implementation would need to backward scan all the way to the beginning of the Bitcoin Blockchain to determine whether or not certain transactions are valid.

 

Scripting


Bitcoin protocol does handle a primitive version of a concept known as ‘smart contracts’. UTXO in Bitcoin can be owned not just by a public key, but also by a complicated script expressed in a simple programming language. In this scenario, after a transaction, UTXO must provide data that satisfies the script. Afterall, even the basic public key ownership mechanism is implemented via a script which is verified using elliptic curve signatures. The script returns 1 if the verification is successful and returns 0 otherwise.

This can be further controlled to write a script that requires signatures from two out of a given three private keys to validate (“multisig”). This is a use case for large conglomerate corporate accounts, secure accounts and escrow situations. These smart contract scripts can be modified to do numerous actions depending on the use case.

However, there are several limitations in the Bitcoin scripting language:

  1. Lack of Turing Completeness – Loops are not available to prevent infinite loop situations but to write a smart contract in a language that is not Turing complete can be considerably daunting.
  2. Value Blindness – The UTXO script is not able to determine if the value of BTC has changed when compared to USD.
  3.  Lack of State – A UTXO can either be spent or unspent. To create complicated smart contracts that might include two stage cryptographic verification on the Bitcoin network is not possible.
  4. Blockchain Blindness – UTXO also does not have access to nonce, timestamp or previous block hash. This limits the application of Bitcoin in many fields.

“Ethereum proposes to build an alternative framework that provides even larger gains in ease of development as well as even stronger light client properties, while at the same time allowing applications to share an economic environment and blockchain security.” 

This concludes the interpretation of Part 1 of the Ethereum white paper. To summarise, this post gave us a general overview of how Bitcoin, the very first Cryptocurrency, functions. We will now move on to analyse how Ethereum is different from the Bitcoin protocol.

 

 

Fundamental Pick: Astronaut Capital

 

Image result for Astronaut capital crypto logo

 

ADDRESSING THE TRUST, ACCESSIBILITY AND MANAGEMENT ISSUES OF ICO’S BY PROVIDING A UNIQUE CRYPTOCURRENCY INDEX FUND

 

PROBLEM TO SOLVE


Since early 2017, the ICO market has grown exponentially as entrepreneurs begun to realise the potential of a new funding mechanism that could raise millions of dollars in a matter of minutes. For example, the ICO for a web browser, developed by the creator of Javascript managed to raise over $35 million dollars in under 30 seconds. Such an efficient funding vehicle had never been seen before, even in the world of venture capital. Both institutional and retail investors were invited to participate, finally allowing mom and pop to get in on the ground floor of what could be some of the most innovative blue-chip firms one shall see in their lifetime.

However, although many ICOs have genuinely good intentions and wish to use their funding to create innovative new products on the Blockchain, some saw this as an opportunity to quickly exploit individuals with a false promise and exit the market quickly. Hence, navigating this vast new ecosystem successfully and profiting from your findings is no easy feat for the average layman.

Additionally, the process of registering and applying for ICO crowd sales is tedious and time-consuming, with cumbersome KYC barriers often putting potential consumers off. Despite this, even if they do decide to make the purchase, management of numerous assets after the fact can become a difficult procedure, with many wallets only offering limited functionality for ICO coins.

Finally, although ICOs promise to accessible to all, whether this is actually the case is highly debatable. Prospective consumers must jump through hoops to find exactly where and how to buy the tokens until their funds are needed. This is often the result of a large majority of such assets being sold to large investors prior to them reaching the public market

 

SOLUTION


Astronaut aims to address the trust, accessibility and management issues of Initial Coin Offerings by providing their own ICO index fund token (ASTRO). Essentially, this allows investors to gain exposure to a varied basket of ICOs without needing to undergo the rigorous due diligence needed in order to profit from this emerging market. The index is carefully balanced by industry experts to ensure maximum profits can be acquired at any given time.

First, to address the point of trust, Astronaut works under the umbrella company Picolo Research. A well-respected cryptocurrency analysis firm with over 10,000 monthly subscribers. They strive to find the most appealing ICO offerings through in-depth fundamental analysis of notable up and coming firms by a team of highly trained professionals. Their articles are clear and concise as possible to help investors understand why a certain ICO has been added to their weighted index portfolio.

Second, in regards to accessibility, ASTRO breaks down industry barriers by buying in bulk from ICOs they wish to add to the index, allowing them to access pre ICO prices and most importantly having the contacts and information to successfully purchase popular projects. This takes the onus off the retail investor and places it in the hands of the well-versed Astronaut team. One merely has to purchase the ASTRO token to gain access to a well researched varied ICO portfolio that is weighted according to market conditions. This universal exposure is often what consumers desire yet simply do not have the time or the resources to pursue.

Finally, on the subject of asset management, Astronaut actively monitor their positions and are not afraid to exit them where a particular ICO has not met their projected expectations. This takes the need for investors to continuously monitor their positions out of the equation, which may be of particular interest to long-term holders or newbie investors who are simply not equipped to tackle this extremely volatile emerging market. Being able to quietly participate in a market using an index allows one to gain exposure to a clearly booming sector without all the associated risks.

 

APPLICATIONS


The ASTRO token provides two types of return for its investors. Firstly, users receive quarterly income distributions based on the amount they invest and their exit activity. Secondly, holders gain any token appreciation aligned with the Net Asset Value (NAV) of the index fund.

Access to the Astronaut index fund is simple for anyone who has invested in an alt-coin in the past, it can simply be bought online at an exchange under its prefix ASTRO. Whether one decides to include this as part of an already manageable portfolio, under the umbrella of ‘ICOs’ or if they wish to let the company manage the entirety of their portfolio, allocating all funds to ASTRO is completely up to the investor. The former is probably most appropriate with a mix of high cap names such as Bitcoin and Ethereum.

 

SUMMARY


Whilst the cryptocurrency market continues to evolve, opportunities to invest in ICOs can provide huge rewards for those who are willing to spend a considerable amount of time researching. Despite this, the risks associated with ICOs can leave naive investors wishing they never entered the market in the first place. For the latter Astronaut provides an easy way to gain access to a well-researched basket of cryptocurrencies without undergoing the due diligence. Definitely, one to consider for those who want to benefit from the ICO boom whilst remaining cautious.

 

CATALYSTS


First-Mover Advantage: Crypto index coins are a relatively new concept in the Blockchain ecosystem, currently ASTRO’s only competitors are Crypto20 and TaaS, this could give them the edge over future equivalent competitors who enter the market

Qualitative Approach: Unlike their competitors, ASTRO heavily focus on in-depth qualitative fundamental analysis to choose their picks and self-weight the portfolio according to the strength of projects, whilst many other index funds use an algorithmic equation to balance top coins against each other according to current market conditions

ICO Focus: Of the few crypto index funds available, most focus on top coins by market cap, whilst ASTRO have chosen ICO’s as their UPS, a much more challenging environment for consumers to invest in successfully

 

RISK FACTORS


Reliance: Whilst relying on experts who understand the ICO landscape extremely well may be more successful than investing personally, you are ultimately avoiding putting in the due diligence yourself, studying their methodology for allocating coins to your portfolio is highly advisable

Small-Cap: Currently the project is listed as 750 by Market Cap on coinmarketcap.com, hence the project has yet to gain large amounts of traction, there is certainly a need for the expansion of the number of exchanges that ASTRO is listed on

 

CONCLUSION


The ICO market has seen both the biggest winners and losers in the cryptocurrency marketplace to date, yet picking the winners is no easy feat. ASTRO may provide a safe haven for investors who seek to gain exposure to such a market without the undeniable risks associated. Relying on others to do research for you is often risky business, yet with a sound methodology centred around fundamental analysis and a well-regarded team, the project appears to have great promise. Besides, not all individuals have the time or knowledge to pursue such due diligence on a market which is certainly overwhelming and continuously expanding. For this reason, ASTRO is certainly one to watch as they grow.


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Fundamental Pick: Ontology

 

Image result for ontology logo

 

 

PROVIDING TRADITIONAL BUSINESSES WITH ALL THE NECESSARY TOOLS TO CREATE THEIR OWN INDEPENDENT BLOCKCHAINS

 

SYNOPSIS


Founded by members of the renowned Neo blockchain initiative, Ontology aims to revolutionise the business world as we know it. Whilst many blockchain firms seek to specialise in a unique problem, Ontology’s strength lies in the diversity of their approach.

In essence, Ontology intends to provide traditional businesses with all the necessary tools to create their own independent blockchains, without the need for prior knowledge of distributed networks.

For example, they offer the easy integration of traditional business services such as identity verification, the exchange of sensitive data and protocol management. At current, inadequacies of centralised trust networks mean that such services are vulnerable to insufficient privacy protection, cumbersome identity verification and suffer from monopolisation of data management.

Using Ontology, these flaws in the current status quo can be alleviated, by migrating all such desired services to comprehensively more efficient decentralised trust mechanisms, without businesses requiring prior knowledge, whilst meeting organisational needs of all sizes. This has the potential to become a catalyst for removing blockchains high barriers to entry in the business world, ultimately leading to large-scale adoption.

For this reason, many institutional investors are extremely excited about the project, as the broad business mindset appeals to their needs. Still in its infancy, with plenty of room to grow, Ontology could pose as a great long-term investment.

 

CATALYSTS


  • Strong support from the Neo Foundation, with leading members of the City of Zion council transitioning over to Ontology from the popular smart contract platform
  • Founder member Jun Li has worked in Fintech for an impressive 16 years and was Co-Founder of OnChain, which is well connected within the Chinese business community
  • ‘Co-Builder Plan’, a collaborative effort to advance blockchain infrastructure is supported by some colossal Chinese venture capital firms including Sequoia China, Danhua Capital, Matrix Partners China, and ZhenFund.
  • A large proportion of ONT tokens have been allocated to the technical community in order to incentivise growth

 

RISK FACTORS


  • Ontologies broad mandate could backfire if the network fails to become scalable, due to the pace of its own success
  • As with many blockchain firms, the effectiveness of the project is yet to be seen and cannot be guaranteed, although the sequential release of their mainnet, id system and verifiable claim protocol in late June appears promising
  • The threat of Chinese regulation impacting their innovation, although their team comprises experts with links to government bodies to mitigate this risk

 

CONCLUSION


Although Ontology is still a relatively young project, it has gained widespread support from the blockchain community within a short space of time. This can largely be attributed to the diversity of their approach, which seeks to satisfy the needs of businesses of all shapes and sizes, by providing a universal toolkit that aims to bridge the gap between the inadequate status quo and the decentralised future.

Hence, Ontology largely appeals to the business mindset by removing the high barriers to entry that blockchain often imposes and ultimately allowing for large-scale adoption. Such a business model, coupled with their nepotistic foundation and their soon to be released projects, suggests that Ontology has a great future ahead of them.

Over the coming months, it will become clear whether the project can live up to its prosperous beginnings, although with such prominent Chinese venture capitalists supporting the project, you may want to believe the hype.


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Fundamental Pick: EOS

Image result for eos logo

 

THE MISSING ELEMENT TO PUSH DAPPS INTO THE MAINSTREAM MARKET

 

SYNOPSIS


Currently, one of the main barriers to adoption in the blockchain industry is scalability. Although innovative market leaders such as Ethereum have allowed for the creation of decentralised applications that utilise smart contracts, their usability on a large scale is severely limited. This is the result of the Proof of Work (PoW) model, where all nodes within the network have to agree on a single transaction in order for it to be added to the Blockchain.

EOS aims to solve this problem by creating a unique Proof of Stake (PoS) model which should scale to handle millions of transactions per second. EOS’s focus on scalability stems from the belief that in order for the space to receive mainstream adoption, robust enterprise applications need to be able to function as they do in our current world. Without such an ability, DApps use cases can be viewed as limited and almost novel. However, as with any groundbreaking technology, finding ways to solve fundamental problems takes time, EOS focus on this key issue could set them apart from the multitude of platforms currently in the market.

Additionally, unlike many other platforms, EOS lets users utilise the DApps created on their Blockchain without needing to spend unnecessary funds on transaction fees. This is achieved by allowing users to spend transactions proportionally to the amount of EOS they hold, a feature built into the Proof of Stake (PoS) consensus algorithm. Ultimately, this permits users to use applications without the need for spending tokens unless they are purchasing a product or service, as familiar in the traditional App market. This link between the current status quo and what the future holds could provide Blockchain technology with the bridge it needs to attract the masses.

Additionally, EOS’s PoS model avoids the need for cumbersome widespread consensus to be achieved in order for upgrades or edits to the main system or DApps themselves, as seen in the PoW model. Some may argue that this is a key feature in the security of a distributed network, despite this, however, the current PoW algorithm suffers from slow bureaucratic proceedings.

Innovations such as these are rare and although PoS may not be the final solution, constantly progressing towards technological perfection is certainly admirable. For the proposed reasons, EOS appears to have a keen vision for what the future Blockchain space may hold, and being a market leader in the unique PoS model provides them with a distinct market advantage. With the launch of their independent Blockchain already in use, it will be interesting to see the progression of projects developed on the EOS platform over the coming year. Certainly, one not to miss before it goes mainstream.

 

CATALYSTS


  • CTO Dan Larimer has a proven track record with several successful projects under his belt including Steemit (decentralised social network) and Bitshares (decentralised exchange)
  • EOS’s ICO raised an outstanding 4 Billion USD, providing a substantial war chest to deal with the turbulent cryptocurrency market and provide funding for the ecosystem
  • Partnership with Bitfinex, one of the world’s most liquid cryptocurrency exchanges, to build a decentralised exchange based on the EOS Blockchain
  • CEO Brendan Blumer has promised to allocate 1 Billion USD to fund projects built on the EOS platform, allowing for the industry grade DApps they wish to build to be realised

 

RISK FACTORS


  • Although CEO Brendan Blumer has created several successful companies including II5 (tech) and okay.com (real estate), he has no experience within the Blockchain space
  • The Blockchain platform sector is the most competitive within the market, including notable figures such as Ethereum, NEO, Cardano etc. Although, EOS definitely has a unique selling point with its innovative PoS consensus algorithm
  • Certain individuals oppose the PoS model entirely, as they believe it may give substantial power to EOS or turn the idea of a decentralised consensus into a political process, this viewpoint remains to be seen

 

CONCLUSION


EOS could just be what Blockchain needs to push DApps into the mainstream market. Boasting a million transactions per second, accompanied by zero fees, this platform should be both scalable and usable for the masses.

Questions of whether the PoS consensus algorithm is secure enough to be immutably trusted certainly remains to be seen, but without such innovations and a real-world testnet, no one will ever know, and large-scale adoption would likely remain stagnant. Having the guts to be the first to pursue such an end goal shows strength in vision.

Thus, if EOS manage to prove their critics wrong, they could become the market leader in the platform ecosystem. The coming year will surely determine this fate, so be sure to keep an eye on such an opportunity.


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Fundamental Pick: Polymath

 

Image result for polymath logo

 

CHANGING THE WAY SECURITIES ARE CREATED

 

SYNOPSIS


Over the past two years, ICO’s have raised more than 4 billion dollars in revenue, yet in the period before 2018, none of them were registered with the SEC (Securities and Exchange Commission). If certain crypto assets are determined securities, without abiding by the traditional framework, there could be grave consequences.

This hot topic is the problem Polymath is determined to solve. In order to achieve this, they propose a platform in which to create security tokens where all necessary regulatory requirements are accounted for. This new framework has been coined the security token standard: ST-20 and is comparable to Ethereum’s ERC-20, whilst focusing on securities and abiding by the SEC regulations.

Allowing for the simplification of the legal process of creating and selling security tokens in compliance with government regulation. This merging of emerging blockchain technology and traditional regulations has many individuals excited, as it will allow for institutional figures to feel more secure when investing large sums of money in ICO’s in the future.

Arguably a factor which is currently holding blockchain technology back from mainstream adoption. With little competition in the blockchain market at current, Polymath’s platform could truly change the way securities are created and traded in the future, for this reason, the project appears to have great potential if pulled off professionally.

 

CATALYSTS


  • CEO Trevor Koverko has long-term experience in the cryptocurrency market, previously working for reputable companies such as ShaftShift and Luminex
  • 30 core team members, with wide-ranging experience in blockchain and traditional finance roles, working for companies such as LedgerX, Jaxx, Overstock, and Deloitte
  • First mover advantage, with little comparable competition currently
  • Collaboration with tZERO advisors who are also building a securities exchange, providing liquidity to the market
  • Partnerships with KYC facilitators IdentityMind and BnkToTheFuture, alongside SelfKey, a digital identity verifier

 

RISK FACTORS


  • Not all team members are fully dedicated to the project, as their time is split between multiple projects
  • tZERO is also building a securities exchange but is still in its ICO stage
  • The main competitor at current is the SEC itself, although their traditional procedure is often long and rigorous

 

CONCLUSION


As with any emerging technology, blockchain has largely outpaced regulation from those who seek to implement it. Although this may allow for constant innovation within the sector, it often holds institutional investors back from supporting projects they believe in.

Polymath may prove a safe haven for these more cautious investors, by providing a platform where security tokens can be easily created that meet all necessary regulatory requirements with ease. As a result, individuals can feel comfortable in investing large amounts of money within the sector, without facing a backlash from intervening regulators in the future.

Consequently, many individuals see great potential in Polymath, and with little competition at current in the blockchain marketplace, the project could truly change the way securities are created in years to come. Talks of impending regulation are only going to increase whilst the blockchain space matures, and with such talks, the popularity of the project will likely grow, for this reason, Polymath could be an excellent long-term investment.


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Fundamental Pick: Selfkey

 

Image result for selfkey

 

 

STREAMLINING TEDIOUS KYC PROCESSES FOR BUSINESSES WHILST ALLOWING INDIVIDUALS TO CONTROL THE FATE OF THEIR OWN IDENTITY

 

PROBLEM TO SOLVE


Currently, we place an enormous amount of trust in centralised authorities to store and manage our identity. Such organisations entitle us to essential human rights such as financial services, citizenship/passport registration and business licenses. As with all centralised entities they are incredibly prone to hacking resulting from a single point of failure, all user data is stored in one single place. This has too often resulted in our identities being exploited for criminal purposes such as identity fraud, as seen in the Equifax hack where 143 million users identity were stolen from a central database.

Coupled with this inefficient management of sensitive data, the current process of completing mandatory KYC (Know Your Customer) processes for business is cumbersome, costly and repetitive. KYC ensures that client identities are fully assessed before any business relationships are formed to avoid the risk of illegal or fraudulent interactions. They span numerous jurisdictions and are therefore widely used by firms all over the world. Sharing sensitive identity data to numerous centralised databases has it proposed risks, but perhaps more poignant is how much time and energy is spent completing such a process repeatedly.

 

SOLUTION


Such inadequacies with the current status quo have lead Selfkey (KEY) to provide an innovative solution. In essence, KEY aim to empower individuals and businesses to possess full control over their own identities by eradicating the need for unnecessary and unsecure centralised intermediaries. Their digital identity system based on the Ethereum Blockchain will allow users to upload all necessary documentation to ensure they are fully compliant to pursue any venture which needs identity verification, whether this is for commercial or personal purposes. By combining all necessary documents in one place on their desktop and mobile app, which only the user has access to via their individual public key, applying for financial services, passport/citizenship and business endeavours that need KYC compliance becomes simple. Thus, for businesses, KEY eliminates the mundane and costly repetition of KYC registrations and for individuals, KEY allows easy access to essential services and ultimately empowering people to own their identity without relying on other unreliable middlemen.

 

APPLICATIONS


Once the platform goes live in Q4 2019, individuals and businesses will be able to purchase a variety of products and services via the Selfkey marketplace utilising the KEY Token, including but not limited to, bank accounts, residency, KYC licences and real estate. Additionally one will be able to manage their cryptocurrency assets, including the KEY token itself and any other ERC-20 tokens. Conversely, unlike many other cryptocurrency firms, KEY already has a working beta of their desktop wallet which looks incredibly professional and KEY also provide an online demo of different functions the desktop wallet will be able to achieve in the future. In a space which is often incredibly difficult to understand from the outside, this a refreshing approach that allows users to gain a deeper insight into how the platform will function in the future. After all, as with all technology, once Blockchain technology is integrated into our daily lives the end users are unlikely to be interested in how things operate in the backend as long as they serve their desired purpose.

 

SUMMARY


Ultimately, Selfkey’s accumulation of necessary documents needed for typical business and personal interactions should reduce time and costs for both parties. KYC registration may be their killer application for businesses, whilst individuals ability to determine how to efficiently manage their own identity should gain further appeal. Still in its infancy, Selfkey has a bright future ahead of itself and if they live up to their roadmap they should become incredibly profitable for long-term investors. Be sure not to miss out!

 

CATALYSTS


  • Proven Ability: Key team members behind Selfkey have already proved their ability to successfully manage a large-scale project from start-up to finish with their successful venture KYC Chain, a KYC solutions provider, that is already working with numerous blue-chip firms
  • Firm Foundations: The interconnectivity between KYC Chain and Selfkey allows the business to focus solely on Blockchain development and user experience as the infrastructure and expertise in the business of KYC is already established
  • Consumer Awareness: The major Equifax hack alongside the Cambridge Analytica Facebook scandal has lead to an increasing number of individuals becoming more aware of how their identity can be stolen or misused for illicit purposes, ensuring demand for having more control over one’s own identity
  • Familiarity with KYC: Every time one wishes to participate in an ICO they have to go through the KYC process, this is a repetitive and long-winded process which many cryptocurrency users are familiar with and would certainly avoid if possible, creating more demand

 

RISK FACTORS


  • Serious Competition: There are other notable other firms trying to provide a digital identity solution using Blockchain technology such as Civic, which has been long established, although Selfkey’s clear advantage is the deep-rooted industry connections that KYC Chain has provided
  • Slow Timeline: For a business that already has such firm industry foundations their timeline is not particularly fast, with continual developments throughout 2019, there will certainly be a race to become the market leader in the digital identity space, although it is also important that everything is completed to the highest of standards

 

EVENTS


  • 30th September: Alpha launch of SelfKey Corporate Identity Wallet desktop app, Alpha launch of SelfKey mobile app and Partnership work with governments and utility providers
  • 31st December: Beta launch of SelfKey desktop app

 

CONCLUSION


Selfkey is an innovative identity platform which aims to streamline the verification process for a variety of services by allowing both individuals and businesses to retain full ownership of their identity. KEY’s killer application is the ability to aggregate all information necessary for KYC processes in one place, whilst only allowing the user access to such information via their public key. This should save a considerable amount of time and expense for businesses all over the world who regularly must be KYC compliant before exchanging value with others.

Of course, this is merely one poignant application KEY offers, the platform will also provide individuals and businesses with access to financial services, citizenship, business licenses and health insurance, to name a few. It is likely the KYC validation market is where we will see KEY thrive first as a result of their successful parent company KYC Chain. Although, with such a wide-ranging market, opportunities for clients and growth are endless. For this reason, Selfkey is one not to miss out on and should be on your watchlist.

 

How To Create An Ethereum Wallet Using Metamask

 

This post walks you through the setup process of MetaMask in Google Chrome. We choose Chrome as it is more widely used than any other browser. However, the process to install MetaMask plugins in Firefox and Opera is also the same.

 

What is Metamask?

MetaMask is essentially a browser plugin that is supported by Chrome, Firefox and Opera. It lets you set up your very own Ethereum wallet right in your browser. You can make transactions into and out of your Ethereum wallet with ease using MetaMask.

 


Step 1: Go to https://metamask.io/


 

Click on the GET CHROME EXTENSION button which is highlighted in the below image.

 You can select Firefox or Opera right below the highlighted box if you use those browsers. The steps that follow are similar. You will be asked to add the MetaMask Extension to your respective browser.

You can select Firefox or Opera right below the highlighted box if you use those browsers. The steps that follow are similar. You will be asked to add the MetaMask Extension to your respective browser.

 


Step 2: Install MetaMask Extension


 

Click on the ADD TO CHROME button to add it to your chrome extension list.

 The browser will check the compatibility and a dialogue box will pop up as shown below. Click on the Add Extension button to proceed.

 

The browser will check the compatibility and a dialogue box will pop up as shown below. Click on the Add Extension button to proceed.

 

Picture3.png

 

Step 3: MetaMask added successfully!


You have now successfully added MetaMask to your browser. Congratulations!

 

Step 4: Open MetaMask


Open a new tab and click on the small orange fox icon in the top right corner of the browser as shown in the below figure.

Picture5.png

 

Step 5: Accept Terms


 This will open a popup window with details. The Accept button will be greyed out. You can either read the Terms of Use or scroll to the bottom of the pop-up window as shown in the below images.

 Note - let's be honest, who reads terms and conditions anyway? Well, terms and conditions are extremely important because they provide information about the product and terms of use. Never ignore them.

Note – let’s be honest, who reads terms and conditions anyway? Well, terms and conditions are extremely important because they provide information about the product and terms of use. Never ignore them.

After you have read the Terms of use, click on the Accept button highlighted in the below image.

Picture7.png

This will be followed by a bunch of terms that you should read and accept as shown below.

Privacy Notice

Picture8.png

Phishing warning

Picture9.png

 

Step 6: Create a Wallet


You must now enter a secure password with at least 8 characters in the boxes provided.

Picture10.png

After entering the password and before clicking the create button as shown in the below figure, please take your time to understand the look and feel of the MetaMask fox as he follows around your mouse pointer. Pretty neat design, eh?

Picture11.png

 

Step 7: Wallet Seed Words


You will now come across 12 words that let you restore your MetaMask accounts. Make sure you keep them safe and secret. I have masked the words below except for the last word economy, for flair. You can either choose to copy the words somewhere safe or save it as a file in your computer. Both options are present as buttons below.

Picture12.png

 

Step 8: Congratulations! Wallet created!


You now have a MetaMask wallet!

 Clicking on each of the options mentioned will perform a particular action.

Clicking on each of the options mentioned will perform a particular action.

  • View account on Etherscan – This will take you to Etherscan.io where you can see all the transactions that have happened on your public address.
  • Show QR Code – This will show your public address as a QR code.
  • Copy Address to Clipboard – This copies your public address to your clipboard.
  • Export Private Key – This is very IMPORTANT as access to the private key determines access to your wallet.

You can also edit your wallet name to whatever you want by clicking on the edit option. I have changed it to ‘My First ETH Account’ as shown below.

 

Step 9: Public and Private Keys


You can now view your public and private keys. DO NOT SHARE YOUR PRIVATE KEYS with anyone.

The following screenshots show public keys and private keys (which are hidden because they shouldn’t be shared)

Public key

Private Key

 

Step 10: MetaMask Wallet Overview


You can now do transactions in ETH directly from your browser! You can explore the BUY and SEND buttons as shown in the below steps.

 

Step 11: Buy / Send ETH


 You can buy ETH from Coinbase or Shapeshift as shown below.

COINBASE

Picture18.png

 

SHAPESHIFT

Picture19.png

You can also send ETH to other recipients by specifying their addresses and the amount you want to send.

Picture20.png

 

This concludes the MetaMask setup tutorial. 
Hopefully, this brief tutorial successfully helped you create an Ethereum wallet on your browser using MetaMask.

 

Fundamental Pick: NEO

 

 

Digitalising Physical Assets In Order To Build The New Smart Economy

 

Overview of 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.