Fundamental Analysis: NEM (XEM)

BBOD Rating [17/05/2019]:
BUY: A low-risk buying opportunity


Overview


Currency CodeXEM
Transaction Start Date01/04/2015
Circulating Supply8,999,999,999
Market Cap596,840,900 USD
Protocol TypeBase blockchain
Where To BuyBinance, OKex
Where To Trade on MarginBBOD

NEM is a Blockchain platform with a keen focus on addressing the needs of business enterprises by providing a highly customisable, accessible and user-friendly protocol that can be much more easily implemented into existing business models than most competing Blockchain projects.

This is achieved with a truly unique project architecture which has been built from the ground up rather than becoming another adaptation of well-known existing systems. As a result, NEM has already seen significant adoption by a well-regarded Japanese institution named Tech Bureau, Japan-based Fintech company, who has developed Mijin the private blockchain software based on NEM technology.

Unfortunately for NEM, the project was tainted in January 2018, when it became subject to the largest cryptocurrency hack of all time of 500 million USD on the Japanese cryptocurrency exchange Coincheck. Despite what many individuals believe, the hack was not the result of a weakness in the NEM Blockchain, in reality being the fault of the centralised exchange itself who were storing NEM coins in a ‘hot’ wallet with little security measures in place to protect their funds from hackers. Such a setback would likely bankrupt many other cryptocurrency projects, the fact that NEM has managed to maintain its reputation and standing within the community is a testament to the founders and developers of the project who have been quietly moving forwards despite all the negative press.

Problem To Solve

High Barriers To Entry

Currently, if a business decides to integrate Blockchain technology into their existing infrastructure it can often be incredibly challenging, expensive and inefficient. This is the result of the majority of Blockchain platforms needing highly skilled developers to learn a completely new coding language or even well-known languages which are familiar in traditional environments but become more complex when integrating into Blockchain protocols. As a result, although businesses often see the promise Blockchain brings they are hesitant to implement the technology into their existing business models. The perfect example is Ethereum, who require developers to learn Solidarity, an entirely unique coding language. Ultimately, such high barriers to entry make businesses extremely hesitant to adopt Blockchain technology, as they simply do not believe that the costs outweigh the benefits.

Private Vs. Public Blockchains

Most platforms currently available in the market are purely public Blockchains, such as Bitcoin, this has immense advantages on the individual level, such as transparency, authenticity and immutable. Yet these features are not particularly useful for businesses looking to use the underlying Blockchain technology in order to make their internal processes more efficient. Broadcasting transactions and information to an entirely distributed network has so far proven to be slow and inefficient for the scalability necessary to operate large-scale operations where information is continually exchanged and needed instantly. By isolating the public from transactions which they need not be concerned with and creating an internal business silo of information, processes can be sped up dramatically to the extent that they can considerably improve upon the existing systems that businesses rely on today.  

Consensus Mechanisms

All consensus mechanisms have their strengths and weaknesses, for example, Proof of Work (PoW) is incredibly inefficient in a business environment as it simply takes to long to process transactions, despite having immense advantages for individuals, such as being immutable, censorship-resistant and immensely secure. Hence, such tradeoffs are incredibly important to decipher once a project has determined what their business model is before they decide to implement a protocol which cannot easily be changed and that is completely unfit for purpose. For Instance, Bitcoin’s PoW consensus algorithm has determined that the project has become a store of value, akin to gold, despite the original intention as proposed in Satoshi’s whitepaper to become a peer-to-peer digital cash. Such decisions, therefore, carry more weight than any decision proceeding them and should not be taken lightly.


Solution

Low Barriers of Entry

Since the NEM Blockchain was built from the ground up, independent of influence from other projects in the ecosystem, a unique approach to providing access to clients who wish to utilise the protocol was achieved. This is what NEM has coined the Smart Asset System. At the core of this system lies the ability for businesses to build on top of the NEM protocol without needing to learn any unique or complex coding languages. Instead, firms can build on top of the platform by utilising powerful API calls to transfer their existing product or service to the NEM Blockchain. This universal ease of access is an incredibly powerful concept as it significantly lowers the barriers to entry for businesses wishing to utilise the technology alongside their existing infrastructure. As such, there is no need to employ expensive Blockchain engineers to try and configure complex protocols. Instead, traditional developers can curate their Dapps outside of the often challenging ecosystem bound by no rules and simply put their ideas into practice by linking them up to NEM’s Blockchain servers. This has already gained significant traction with Mijin, the private chain solution owned by Tech Bureau, which aim to reduce the costs of banking by up to 90% by Q4 2019, whilst making it more secure and faster. Although this may seem incredibly ambitious, Mijin has already been adopted by reputable financial institutions in Japan (e.g.Azure Marketplace running on Microsoft Japan’s Azure cloud platform) who wish to streamline their services to make them more efficient, reducing costs for themselves and their users. Such support shows that NEM is indeed fit for purpose, serving the needs of businesses over individuals and is a testament to them sticking to their vision.

Customisable Blockchains

As previously discussed, everyone has the ability to build upon the NEM Blockchain by utilising API calls, but for business applications where not all information necessarily needs to be broadcasted to every participant in the network or simply cannot be as the data is sensitive, NEM offers the ability for private Blockchains to run on existing internal servers. Here businesses determine which nodes are trusted within the private network, removing the need for technical features which prevent bad actors from causing issues on public Blockchains. This allows for considerably faster transactions than possible in public Blockchains making business applications running on the NEM blockchain considerably faster and more scalable, being able to handle up to thousands of transactions per second. This scalability allows for projects which would traditionally bloat or slow down a pubic Blockchain to function efficiently on NEM’s private Blockchain, such as supply chain information and loyalty point systems, all without any unnecessary information ever being exposed outside of the closed system. Such a system is familiar to businesses as it is how they currently operate and so is more easily adopted whilst increasing efficiencies for both themselves and their consumers. Ultimately, the fact that NEM’s Blockchain is highly customisable allows businesses to easily implement existing practices in order to substantially increase internal efficiencies where they do not need the added functionalities that public chains provide. This has allowed NEM to become the Blockchain of choice for Tech Bureau and his private chain solution Mijin, which will likely spur on further adoption if the project is shown to be a success.

Consensus Mechanism: Proof of Importance

To further address the concerns of business enterprises, NEM took a unique approach to the supply of their token XEM when compared to the majority of other cryptocurrencies. Instead of releasing them at a steady rate with a diminishing supply, much like Bitcoin, when the project was launched all XEM tokens were immediately released to the founding members of the project, who then distributed the tokens accordingly to their communities. This combined with the fact that XEM has a fixed supply of 8,999,999,999 tokens makes for a much more efficient means of exchange in business environments as it is highly divisible. Additionally, it will not suffer from volatility due to scarcity and is not possessed by a few large actors, rather the community at large. Ultimately XEM should operate more akin to a traditional currency allowing it to be a more effective means of transfer in traditional business environments.

Perhaps more importantly, however, is the unique Proof of Importance (PoI) consensus mechanism that has been implemented by NEM. Since the project was built from the ground up with little care for adopting existing protocols, NEM has chosen to take attributes from both Proof of Work (PoW) and Proof of Stake (PoS) and adapt them to fit their business-oriented mindset. As all tokens have already been distributed, no new coins are minted like in PoW. Instead, nodes are rewarded by confirming transactions on the NEM Blockchain and are selected based on their perceived importance within the network. Similar to PoS, nodes have to ‘stake’ a certain amount of transactions in order for them to be eligible to confirm transactions on the network, this shows that they have ‘skin in the game’ and they are, therefore, unlikely to want to jeopardise the network as it will diminish their own portfolio. However, unlike in PoS, PoI places a large amount of emphasis on factors that prove the ‘importance’ of a network participant, such as how often and fast transactions have previously been completed and their current account balance. Nodes that are judged to possess this perceived “importance” are then allowed to process future transactions in accordance with their network “importance” ranking, promoting good behaviour within the network if nodes wish to increase the amount of money they make from transaction fees. The PoI consensus algorithm is energy efficient compared to traditional models as anyone can participate without needing expensive hardware unlike in PoW systems, this ensures centralisation of power is avoided and allows businesses to implement the protocol whilst being socially responsible to the environment. Whereas companies who choose to implement PoW, if that is ever possible, will likely be criticised for the damage they are doing to the environment. Ultimately, the PoI algorithm allows for a much more streamlined Blockchain that has increased speed when compared to its competitors which should allow the NEM Blockchain to scale for business applicants in the future, especially if they choose to implement private systems.


Catalysts

Business Solutions: Unlike the majority of Blockchain projects on the market today, NEM has truly catered their product with business enterprises in mind. The customisability of NEM’s infrastructure allows their product to integrate into existing business models without the need for considerable learning, adaptation and ultimately cost. This is achieved by utilising well-known technical features such as API calls, private data storage and speed. So far, this has attracted the well-regarded Japanese firm
Tech Bureau and his private chain solution Mijin, if this proof of concept can be as efficient as it has promised, then no doubt other businesses will be quick to adopt NEM themselves.

Independent Thought: Instead of utilising well-known consensus mechanisms that work effectively in certain environments but fail at others, NEM has chosen to create their own unique consensus algorithm (PoI) which is fit for the purpose of their vision. This shows just how ambitious and highly skilled their team of developers are, a reliable indicator of whether the project will continue to succeed. Sticking true to their intended audience, business enterprises, who wish to implement private Blockchains will likely serve them well if adoption increases after their ongoing project with Tech Bureau (Mijin), whilst other public Blockchains make slow progress.


Risk Factors

The Hack: Despite the hack being no fault of NEM, the amount of bad press that follows such an attack is enough to destroy even the most disguised brands. Despite this, NEM has proven to hold rank by market capitilisation reasonably well since the event, still sitting comfortably in the top 20 coins. Surviving such a media frenzy shows that the project has a truly dedicated community who are educated enough to see through any false news stories. A testament to both the project and the community.

Private Blockchains: Choosing to focus your efforts on allowing firms to create private Blockchains has inherent trade-offs. Some would argue that NEM is in fact just a more sophisticated database that allows firms to be more efficient without necessarily acting more responsibly. The fact of the matter is if Bitcoin maximalists want widespread adoption of Blockchain technology, projects such as NEM will provide a necessary bridge from retail to institutional clients, which will then lead to greater recognition of the underlying technology by the mainstream. Ultimately leading to greater adoption of all types of Blockchain projects in the future.


Conclusion

The NEM Blockchain is primarily focused on business enterprises, catering to all of their needs from easy adoption with low technical barriers to entry, allowing their Blockchain to be customised to be private and being socially responsible with an energy friendly consensus mechanism. This pinpoint precision will likely place them at the forefront of adoption when businesses look for a Blockchain platform that suits their needs. If the proof of concept with the private blockchain software Mijin proves to be a huge success, who knows how many other firms will look to implement NEM as their underlying Blockchain protocol. One to watch as the Blockchain ecosystem evolves to mainstream adoption.


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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


Fundamental Pick: Cardano (ADA)

BBOD Rating [01/04/2019]

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


Overview


Currency CodeADA
Transaction Start Date01/10/2017
Total Supply31,112,483,745
Market Cap1,870,396,035 USD
Protocol TypeBase blockchain
Where To BuyBinance, Upbit
Where To Trade on MarginBBOD

Cardano is a decentralised and open source public blockchain that seeks to address the key inadequacies of existing models by utilising a scientific philosophy with its foundations built upon a peer-reviewed academic framework. Thus, the project is developed by a global team of leading academics including the former CEO and Co-Founder of Ethereum, Charles Hoskinson, who understand that in order for a blockchain to achieve real-world utility it must be simultaneously secure, flexible and scalable. Consequently, considerable thought and time went into the development of the base layer protocol, with research commencing in 2015 before the official launch date in late 2017. Such scientific rigour combined with the implementation of Haskell, an industrial grade coding language, has allowed Cardano users assurance that the underlying infrastructure is fundamentally secure akin to mission-critical systems such as aerospace and banking. Ultimately, Cardano intends to tackle the problems of scalability, interoperability, and sustainability by utilising a distinct two-layer architecture and democratic governance model.

Problem To Solve


Scalability 

Perhaps the biggest issue facing blockchain protocols today is scalability. The most notable blockchains, Bitcoin and Ethereum, can currently only handle a measly 7 and 15 transactions per second (TPS) respectively. When up against established payment titans such as Visa who process 24,000 TPS, it is hard to fathom how mainstream adoption of cryptocurrency as a means of transfer will ever occur. Of course, there are blockchains such as Ripple which can handle 1,500 TPS, but such projects are accompanied by huge trade-offs, sacrificing protocol security and decentralisation for speed. There have been several attempts to solve the issue of scalability such as Bitcoin implementing the Lightning Network and Ethereum introducing Sharding. Yet ultimately, the foundations that such projects have been built upon did not have sufficient provisions for scalability from their inception. Although they may find workarounds which allow them to pick up speed over time without sacrificing security, at current, they simply aren’t viable platforms for mainstream adoption.

Interoperability 

As the cryptocurrency ecosystem continues to mature, although there will be dominant blockchain protocols such as Bitcoin is today there will also likely be numerous other blockchains that will need to interact with one another in a seamless manner. Moreover, blockchain platforms must have the ability to interact with traditional legacy systems where necessary. Comparably, in the traditional finance world, banks must use SWIFT, ACH and SEPA simultaneously without the end user ever needing to be concerned with what is happening behind the scenes. This is where interoperability between different blockchains comes into play. The problem lies in deciphering how blockchains which are already extremely complex in and of themselves should communicate with one another. This is no easy feat and has yet to be achieved to proof of concept by any blockchain project in the market. Yet it is essential for individuals to utilise cryptocurrencies to their fullest extent moving forwards. Without interoperability, one would have to rely on a single blockchain for all use cases. In reality, this is highly inefficient as every blockchain will have their own unique strengths and weaknesses that users should be able to combine to form a perfectly functioning network. Ultimately, interoperability needs to be achieved without the end user ever needing to be concerned they are switching blockchains in the first place.

Sustainability 

Thus far, financing models in the cryptocurrency market have been barely thought through in terms of sustainability. Although firms have managed to achieve astonishing sums of money from ICOs in the 2017 bull market, the model certainly isn’t sustainable in a bear market, especially as regulators continue to crack down on ICOs. Moreover, ICO funding requires the team to allocate funds in a responsible manner to ensure the long term success of a project. Although a large war chest may take you so far, how does a project continue to succeed when the money runs out? Additionally, funding received at a later stage of development often comes with inherent costs. If one allows a centralised party to fund a considerable amount of their project then they can expect that investor to have a considerable say in the direction of the business. Such centralisation is exactly what blockchain technology is trying to escape and thus it is integral that governance models not only seek to provide for their users but also for the development of a projects longevity. Ultimately, Hoskinson understands that such complex blockchains are not adopted overnight and consequently funds must be in place for years if not decades of experimentation.

Solution


Scalability 

After observing the failures of other blockchains ability to scale, Cardano designed a layered architecture which splits different blockchain functions into independent software stacks. By separating the platform into a series of distinct layers, the project has the flexibility to upgrade one aspect of the platform without interfering with other functions. Ultimately, this allows for simpler platform maintenance, ensuring upgrades are implemented swiftly and allowing the platform to develop at a much faster pace than competitors who have to alter the entire blockchain in order for progress to be made. For example, in the past lack of foresight by well-known industry players such Ethereum has led to contentious hard forks that have taken time and diluted network effects. Alternatively, Cardano will never have to deal with such issues, instead, any upgrades will be made by means of soft forks. The layered architecture works as follows, the first stack concentrates on settlements between parties on the blockchain utilising the Cardano’s native currency ADA. This initial layer allows individuals to transact value with one another, Cardano hopes this will lead to financial inclusion for the billions of unrepresented individuals in the banking system today. The second layer focuses on smart contracts, which are the digital enforced legal agreements that are likely to underpin the future of business. Finally, Cardano will provide a platform that will run Dapps that individuals, organisations and governments may utilise. Ultimately, the Cardano project is in this space for the long-haul and although their TPS may not significantly pass competitors such as Ethereum by much at current, the way their blockchain has been designed allows for long-term scalability.

Interoperability 

In order to solve the issue of interoperability between blockchains, Cardano is implementing an innovative sidechain protocol which allows value and information to be safely transferred between two independent chains with ease. Such a mechanism will initially be used in order for the internal layered architecture to transfer value and information between the settlement layer and the smart contract layer. Once this has been achieved and the project grows in user base, Cardano will strive to create bridges between their independent blockchain and other distinct chains within the ecosystem. Additionally, although the ability to integrate Cardano into traditional legacy systems is very much a work in progress, the research that supports their effort to achieve such a goal is clear and open for all to comprehend. This detailed open-source transparency is an excellent example of just how research-driven the project is and one would be hard pushed elsewhere to find such complex ideas expressed in an easier understood format for their users. Ultimately, Cardano is making clear progress towards achieving interoperability by using a methodical approach to ensure that the concept operates perfectly internally before trying to integrate into distant blockchains in an inadequate manner. This is a testament to the scientific philosophy of Cardano and will surely serve its users well in the long run.

Sustainability 

Base layer blockchain protocols need longevity in order to ensure they can compete in years to come when mass user adoption begins to occur. In order to achieve this Cardano has implemented a Proof-of-Stake (PoS) consensus mechanism named Ouroboros. One of the key attributes of this governance model is the treasury provided by transactions that occur on the Cardano blockchain. Essentially, Ouroboros has sustainability baked into its code as a 25% of the block reward for each transaction is placed into the Cardano treasury to help foster the growth of the ecosystem. This innovative use of block reward ensures the project can organically finance itself for as long as the network is functioning, the greater the project grows the more funding it will have to ensure its future. Besides, the initial funding round of 63 million USD should be plenty to keep the project up and running until user adoption can flourish. Ultimately, this mechanism avoids involving any centralised party in the project for the sake of financial necessity. This will allow Cardano to grow in the decentralised nature as initially intended, sticking true to the morals that should be upheld by all projects within the cryptocurrency ecosystem, yet are often not.

Catalysts


Longevity: Unlike many blockchain platforms which seek to become the market leader as quickly as feasibly possible, Cardano has disguised itself by introducing a more methodical approach comparable to that in scientific communities. Consequently, although such a research-driven strategy will not necessarily see the quickest implementation, Cardano is far less likely to suffer from bugs and critical failures as many other projects will likely show in time. This should provide investors assurance that the project is a safe long-term investment.

Hindsight: Since Cardano began development in 2015 and did not rush to enter the altcoin bull market in 2017 it has learnt from the mistakes of its competitors, especially concerning scalability. Such patience to provide users with an improved layered architecture that may now actually be able to scale to tackle the needs of those who are unrepresented in the financial system today shows that the project founders are certainly not in this to make money. Instead, Hoskinson and his vast distributed team of researchers appear to truly care for the needs of their users which with time will certainly build a strong and dedicated community. The influence of network effects in the blockchain market should not be underestimated.

Introduction of Futures contractsBBOD, the world’s major cryptocurrency derivatives exchange, has announced that it is launching ADA futures contracts with up to 25x leverage. Cardano project was selected as one of 16 most popular and promising projects with the most enthusiastic community and promising technology.

Risk Factors


Highly Saturated Market: If Cardano is to succeed as a smart contract platform for Dapps to be built on top of then it must compete against the numerous other blockchain platforms that already exist within the market today. As most are aware, the majority of Dapps are currently built on top of Ethereum, but other projects such as NEO and EOS are nurturing a small group of Dapps themselves. Despite this, It is worth noting that Cardano’s smart contract platform will be compatible with Ethereum smart contracts. This enables developers to transition their code over to the platform if they believe Cardano is more suited to their needs. In the long run, this may well be the case.

Project Scale: Cardano is hugely ambitious in scale and with its research-driven approach the implementation of the project for real-world use cases is likely to take a considerable amount of time. That being said the market is certainly still in its early adopter phase and being seen to be the market leader at current is not necessarily beneficial if users do not actually adopt the technology for another decade. If Cardano can achieve all it has set out to accomplish then it will certainly be a key contender in the market when mass adoption is actually present.

Conclusion


The research-driven approach that Cardano has chosen to implement to the development of their project speaks volumes in a market that is largely diluted by cryptocurrencies which appear to only be seeking short term gains. The goals of Cardano are certainly ambitious, yet appear feasible if the same transparent methodical steps are taken to slowly improve upon the solid foundations that have been established since the inception of the project. If achieved, Cardano could present itself as an immutable means of transfer of value and information for those who are truly in need. As developers and users become more informed on their options for creating smart contracts or utilising a blockchain network for self-gain, Cardano will surely be seen as one of the most secure and sensible blockchains to take advantage of. The road to a fully functioning blockchain network is certainly long but that should not deter savvy investors or users who are in this space for the long haul. Certainly, a blockchain platform to keep on your radar as the cryptocurrency ecosystem continues to evolve.


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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 an 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 Analysis: DigiByte [DGB]

BBOD Rating [05/03/2019]


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

Overview


Currency CodeDGB
Transaction Start Date10/02/2014
Current Rank#43
Total Supply21,000,000,000
Circulating Supply11,509,175,132
Protocol TypeBlockchain Platform
Base ProtocolDGB
Where to trade with leverageBBOD
Where To BuyHuobi, Bittrex, Poloniex, Upbit

Problem to Solve


DigitByte aims to solve some of the key perceived shortcomings of the Bitcoin Blockchain. Although, project founder Jared Tate does not necessarily want to directly compete with the titan that is Bitcoin. Instead, he proposes an alternative for a community of individuals who believe improvements are necessary for mainstream adoption. As such, the project focuses its efforts on two distinct aspects which are viewed by many as obstacles to overcome in order for Bitcoin to function as an immutable currency, rather than a store of value. Whether illusive Satoshis Nakamoto intentions were to create an everyday currency or a store of value are outside the scope of this report, although personally, I would argue the latter.

Speed

Regardless, the speed of confirmations on the Bitcoin Blockchain means transacting fractional amounts is cumbersome and cost ineffective. In order for a transaction to be confirmed, on the Bitcoin network, one needs to wait for 6 confirmations, with each block confirmation taking approximately 10 minutes, totalling an hour. This simply does not work in retail environments where transactions are currently made in a matter of seconds using traditional intermediaries such as Visa and Mastercard. Although there have been efforts to introduce faster transactions by utilising a protocol known as the lightning network, nothing yet has come to fruition. Moreover, the limited supply of 21 million Bitcoin means its divisibility becomes questionable when working as a means of transfer. In the future, one might have to divide a Bitcoin into a single satoshi, 8 decimal places smaller than a Bitcoin itself. This is time-consuming and not especially user-friendly for small purchases.

Security

Additionally, some have questioned the security of the Bitcoin network, as although the Bitcoin Blockchain is incredibly robust at current, it only utilises one mining method. This may become a threat in the future, as those who can afford to mine Bitcoin will need to spend large amounts of money on extremely advanced hardware. Ultimately, this could lead to several centralised mining corporations controlling the network, making the likelihood of a 51% Blockchain attack more feasible. This may seem far-fetched but it is a genuine community concern for the long-term success of the Bitcoin protocol.

Solution


Speed

In order to circumvent the issue of speed, DigiByte’s [DGB] block time is 40x faster than that of Bitcoin, processing each individual block within 15 seconds as opposed to 10 minutes. Consequently, the DigiByte Blockchain is now the longest in the world, despite being introduced 5 years after Bitcoin. Superior block speed allows DigiByte to handle approximately 560 transactions per second, whereas Bitcoin can currently only handle 8 transactions. Such an achievement was the result of DigiByte becoming the first cryptocurrency in the market to implement segregated witness (SegWit). Essentially, SegWit separates transaction confirmations from the transaction information on the Blockchain, making the ledger more compact.

Clearly, fast transaction speeds afford DGB some ability to compete as a means of transfer in traditional retail markets, with Bitcoin currently being undeniably useless for fast payments. For example, Visa currently processes approximately 2000 transactions per second, only around 4x quicker than DigiByte. To put things in perspective, Visa was founded 60 years ago in 1958 and DigiByte in 2014. The DigiByte protocol doubles block processing times every two years, thus if successfully implemented, DigiByte will outpace monopolies of the payment world within 4 years. This is an incredibly exciting prospect and certainly rare in the cryptocurrency space. If DigiByte were to achieve such a feat and keep pace with industry giants, then the project would unquestionably gain large amounts of publicity, with the potential for mass adoption.

Moreover, whereas Bitcoin has a fixed supply of 21 million coins, DigiByte has 21 Billion, decreasing the amount DGB needs to be divided in order to be used for a means of transfer. For example, a cup of tea may cost you 0.0005 Bitcoin as opposed to 150 DigiByte. Consumers enjoy dealing in whole numbers as opposed to decimal figures and so this ensures the usability of the currency for small transactions remains highly functional.

Security

In order to improve upon the immense security of the Bitcoin network, DigiByte has implemented a unique mining protocol which ensures centralisation of the network by large actors is even less possible. They have achieved this by splitting mining activities into five separate pools of miners, as opposed to Bitcoins singular pool. Each separate pool requires a different level of algorithm difficulty, allowing for a more diverse and decentralised group of miners to maintain the security of the network. For instance, the immense amount of computational power it takes to mine Bitcoin means it simply isn’t feasible anymore for small actors. Contrary, DigiByte can be mined using a variety of different levels of computational power, ranging from personal computers to more sophisticated ASIC rigs which are now essential in Bitcoin mining. This has enabled the DigiByte network to span six continents with over 100,000 nodes. Ultimately, this makes centralisation of DigiByte’s distributed network impossible.

Moreover, DigiByte has implemented a multi-shield protocol coined Digishield. Essentially, Digishield prevents one of the mining algorithms from becoming dominant by constantly adjusting the difficulty of each algorithm as soon as the computational power becomes familiar with it. Eradicating the ability for miners with more processing power to manipulate smaller mining pools. Sophisticated difficulty adjustments further the case for preventing malicious centralised takeovers of the network and makes the DigiByte network one of the most secure in the world. In fact, after the success of Digishield, many other cryptocurrencies have implemented the same strategy on their own Blockchains. This continual technological foresight is ultimately why DigiByte has such a large community who believe the project is at the cutting edge of Blockchain technology and will continue to lead the way in the future.

Catalysts


Forward-Thinking Tech: DigiByte excels at being a true innovator in the cryptocurrency marketplace in terms of their underlying technology. They were the first blockchain project to implement SegWit successfully allowing for incredibly fast transactions. Whilst Digishield immense security has become widely used after it was implemented on the project. This forward-thinking approach may be unnoticed by many but should ensure DigiByte keeps pace with industry giants for when mass adoption becomes a reality.

Introduction of Futures contracts: BBOD, the world’s major cryptocurrency derivatives exchange, has announced that it is launching Digibyte futures contracts with up to 25x leverage. Digibytye was selected as one of 16 most popular and promising projects with the most enthusiastic community ( along with Bitcoin, Ethereum, EOS) .

Means of Transfer: If Blockchain technology is to be understood by the mainstream market then layman will need to see simple interactions work in practice. DigiByte provides a means of transfer which has the potential to rival huge multinationals such as Visa and Mastercard in traditional retail environments within 4 years. Regardless of this, the project could be an excellent means of transfer for remittances as it currently stands, with Western Union charging extortionate fees for 3-5 day transfers as opposed to DigiByte’s minimal fees transferring within 15 seconds. Remittances certainly have the potential to become their leading market in the future.

Risk Factors


Fierce Competition: When the project launched in 2014, Bitcoin was still the dominant cryptocurrency, although it did not possess the world standing it has today. Competing with the biggest cryptocurrency in the marketplace is not an easy task. The success of DigiByte will likely stem from a move away from their comparison to Bitcoin and towards how unrivalled speed and security allow DigiByte to become one of the first cryptocurrencies to become a successful means of everyday transfer rather than Bitcoins competency as a store of value.

Adoption: The extremely decentralised nature of the DigiByte project leaves the founder Jared Tate at the helm with little team member support for necessary marketing and business strategy activities. Despite this, the project is propped up by a large community of individuals who believe in the cutting-edge technology, perhaps a testament of what the project could become a more aggressive marketing strategy. Whether the focus, for now, is purely on excelling at becoming the most technologically advanced cryptocurrency is up for debate, but if this is the case it should be communicated to DigiByte’s dedicated community.

Conclusion


DigiByte constantly strives to ensure the underlying technology of the protocol is cutting edge in an already incredibly innovative ecosystem. Although marketing certainly isn’t the projects strong suit, the continual foresight for implementing technical updates before anyone else in the industry, such as SegWit and DigiShield, speaks a thousand words. If the project can continue on its current trajectory with continual speed and security updates, it has a real chance of becoming ‘the’ immutable currency the industry adopts. If this is proven correct, DigiByte will gain enormous amounts of publicity and most importantly has the potential to fuel the day to day adoption that the cryptocurrency ecosystem currently needs. Certainly, one to keep a close eye on as it quietly continues to succeed.


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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 an 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 Analysis: BBOD (BBD)

BBOD establishes a new industry standard for cryptocurrency futures traders by providing high-speed leverage altcoin trading, stablecoin deposits, and non-custodial client accounts.

Company overview

Key Metrics
Ticker BBD
Target Price N/A
Total Supply 117,382,569
PlatformEthereum, ERC-20
Token Type Utility
Utility typeTrading fee discount
Website https://bbod.io/

Blockchain Board of Derivatives (BBOD) is a semi-decentralized cryptocurrency futures trading platform that provides a real-time, ultra-fast matching engine in conjunction with decentralised, secure blockchain based settlement.

BBOD accepts deposits in the stable coin TrueUSD (TUSD) and offers futures trading on 16 cryptocurrencies against TUSD, enabling one to make profits from both rising and falling cryptocurrency prices.

BBOD’s hybrid architecture offers the user experience of a centralised trading platform whilst providing the security and privacy of a decentralised exchange.

The exchange boasts a matching engine that can perform 1.25mln messages/sec and is known for its high capacity and low latency.

Behind the platform is a professional team of 35+ employees residing in Cambridge, Barcelona, Seoul, São Paulo, Manilla, Ho Chi Minh City and Mumbai.

BBOD is primarily an altcoin margin trading focused exchange, differentiating itself from Bitmex, Deribit, Huobi DM, and Okex. The platform aims to average $100m trading volume per day by the end of 2019.

BBOD looks forward to launching the beta version in Q2/2019.


Token economics

BBD Token overview

BBD is an ERC-20 token issued on the Ethereum blockchain.

The BBD contract address is: 0xb79fc5505ea4f3b920ee7e3349de064226692717

Total Supply: 117,382,569 BBD

Max. Supply: 275,803,582 BBD

Please note that, Max. Supply is higher than Total Supply because BBOD performed a ‘token migration’ in 2018. BBD token-holders migrated the tokens from the old contract address to the current contact address. As a result, BBD token-holders received additional BBD tokens. The split ratio was 100-for-1.

The old contract address: 0x5ca71ea65acb6293e71e62c41b720698b0aa611c

*Definition of Total and Max. Supply: https://coinmarketcap.com/faq/

BBD as a utility token

BBD is the native utility token that functions within the BBOD ecosystem and has several core use cases, including:

  • All trading fees are paid in BBD
  • Trading fee discounts
  • Participation in BBD giveaways through the ‘BBOD Lottery’
  • Participation in Trading Competitions
  • Professional, individual trading strategy courses
  • Renting/buying algorithmic trading bots
Trading fee discount

A user who has a sufficient amount of BBD tokens will receive a ‘BBD discount’ of up to 10% for taker fees based on their current BBD balance. (Table 1)

Table 1. BBD holdings discount

TierBBD HoldingsDiscount
0≤ 5000
1> 5006%
2> 2,5008%
3>10,00010%

A user who has a sufficient amount of BBD tokens will receive a ‘Volume discount’ of up to 8% for taker fees based on their traded volume generated during the last 30 days. (Table 2)

Table 2. Volume discount

Tier 30-day Volume(TUSD)Discount
0≤ 9,000,0000
1> 9,000,0004%
2> 30,000,0006%
3> 90,000,0008%

A user may combine both discounts receiving up to an 18% discount for taker fees in total. E.g. A user is able to receive 8% + 4% = 12% discount if he/she has a current BBD balance of 2,501 BBD and has generated traded volume of 9,000,001 TUSD during the last 30 days.

Participation in BBD give away through ‘BBOD Lottery’

BBOD plans to organise weekly ‘BBOD Lottery’ events with attractive rewards. The initial requirements to enter the lottery will be possessing a sufficient BBD token balance and trading volume. The higher BBD holdings and the more trading volume, the more lottery tickets the participant shall receive. BBOD aims to give away a substantial amount of BBD received from trading fees.

BBD Token Distribution

BBD token-holders distribution is highly concentrated. The top 5 holders collectively own 70.34% of the total supply.

Table 3. Top 5 BBD holders

 BBD balanceShare
129,275,07624.9399%
225,919,72122.0814%
310,147,3898.6447%
49,698,3888.2622%
57,529,8706.4148%

BBOD vs. Competitors

BBOD is classified as a semi-decentralised cryptocurrency futures trading platform. Currently, there are a few other futures trading platforms on the market, however, all of them are fully centralised.

BBOD is the only leveraged trading platform that offers non-custodial accounts for traders.

We have identified four other projects that portray significant similarities to BBOD with regards to their trading products offering.

Table 4. Main competitors

HUOBIOKEX BBODBITMEX BITFINEX
Traditional futures
Perpetual futures
Long/short altcoins
Non-custodial accounts
On-chain settlement
Proof-of-solvency
Number of data feeds for index calculations4594N/A
Base levarage20x20x50x100x3.3x
Number of underlying assets 48168+100
Collateral for margin tradingMultiplesMultiplesTUSDBTCMultiples

Competitive advantages

SAFETY
The world’s first margin trading platform that introduces non-custodial accounts. The platform does not hold either the clients’ digital assets or their private keys.

HIGH LEVERAGED ALT TRADING
There is no other place to trade such a large variety of smaller altcoins with up to 50x leverage. This allows one to utilise capital more efficiently.

TRANSPARENCY
All balances of the clients’ smart contract accounts are visible on the blockchain (e.g. via Etherscan.io website). In comparison, traders’ deposits at centralised exchanges are located in one or several large wallets controlled by the owners of the exchange.

PROOF OF SOLVENCY
Due to the full transparency of our clients’ funds, BBOD proves solvency (assets = liabilities) every day, once the daily settlement on the blockchain has been performed. It is not clear if our competitors have sufficient funds to satisfy all of their clients’ withdrawal requests.

ADVANCED INDICES DESIGN
Our robust, efficient and intelligently responsive algorithm combines data feeds from 9 spot exchanges. The component spot prices are dynamically weighted according to the current market conditions.

FAIR LIQUIDATION RULES
Any remaining funds from liquidation stay in a clients’ account. Some competitors take all the remaining equity after liquidation.


Roadmap

BBOD is very conservative in terms of announcing future project developments. However, BBOD aims to add three key features to the platform moving forward:

  • Q2/2019: Crypto Index Futures (10 most liquid cryptocurrencies)
  • Q4/2019: New deposit/collateral currencies: Bitcoin, Ethereum and other stable coins pegged to USD and JPY, KRW, EUR, GBP
  • Q1/2020: Vanilla Options on Futures

Valuation

The most popular approaches to assessing the value of a token are the Discounted Cash Flow model (DCF) and Relative (multiple) Valuation model. Due to the lack of historical data related to the traded volume on BBOD, DCF is not an applicable model to assess the value of BBD tokens.

Thus, the Relative Valuation Approach using a dataset of comparable exchanges was adopted to derive a Market Value/Volume multiples (MV/Vol) for all selected exchanges to estimate a possible price range of the BBD token.

The MV/Vol ratio measures the dollar value of the traded volume relative to the total token market value (Market Value). This is a simple way to compare how the market prices one unit of traded volume across exchanges.

We sampled a set of 12 exchanges. The main factor was the Market Value of their tokens. We excluded some exchanges which may not report genuine trading volume.

First, we calculate the Average Daily Volume (Avg. Daily Volume) for each exchange as:

Avg. Daily Volume = 30-day Volume / 30

The MV/Vol ratio for each exchange is computed as follows:

MV/Vol = Market Value / Avg. Daily Volume 

In order to compute the ratios, we selected comparable exchange tokens and collected the required data from https://coinmarketcap.com as of 10/02/2018.

Table 5. Overview of comparable exchange tokens

CoinSymbolPriceTotal SupplyMkt CapType
BinanceBNB$9.150189,175,490$1,730,955,734Centralised
OkexOKB$0.6331,000,000,000$633,299,000Centralised
Huobi
HT$1.010500,000,000$505,000,000Centralised
EthfinexNEC$0.1211,007,949,847$121,984,106Decentralised
CoinbitDEX$0.0531,877,411,130$99,131,062Centralised
KucoinKCS$0.375179,939,916$67,531,450Centralised
BiboxBIX$0.129264,480,791$34,158,488Centralised
Kyber NetworkKNC$0.141215,232,645$30,451,760Decentralised
LatokenLA$0.062400,000,000$24,886,800Centralised
CossCOSS$0.065200,000,000$12,945,600Centralised
Crypto BridgeBCO$0.37027,000,000$9,990,000Decentralised
CobinHoodCOB$0.0091,000,000,000$9,360,000Centralised

After calculating the MV/Vol for each of the selected exchanges, we assigned weights to each exchange.

Weight = Market Value / Sum of Market Value for each exchange

Finally, we computed the Weighted Average Market Value/Volume multiple (WA MV/Vol). (Table 6)

WA MV/Vol = Sum of (Weight * MV/Vol) for each exchange

The valuation is highly sensitive to the weighting methodology. Due to the fact, that trading volume on many exchanges is often higher than in reality. Thus, we decided to assign the weights based on the Market Value of the tokens. We believe that the MV/Vol ratios of the tokens with the highest Market Value are more stable and more efficiently valued by market participants.

Interestingly, the decentralised exchanges offer higher multiples which may be a sign of a premium for proof-of-solvency and real volume calculation.

Table 6. MV/Vol Valuation

CoinMkt Cap30-day VolumeAvg. Daily VolumeMV/VolWeight
Binance$1,730,955,734$16,398,429,527$546,614,3183.252.8%
Okex$633,299,000$12,751,427,596$425,047,5871.519.3%
Huobi
$505,000,000$8,756,094,701$291,869,8231.715.4%
Ethfinex$121,984,106$46,542,806$1,551,42778.63.7%
Coinbit$99,131,062$1,641,185,589$54,706,1861.83.0%
Kucoin$67,531,450$138,418,538$4,613,95114.62.1%
Bibox$34,158,488$8,809,972,787$293,665,7600.11.0%
Kyber Network$30,451,760$5,350,486$178,350170.70.9%
Latoken$24,886,800$4,032,024,713$134,400,8240.20.8%
Coss$12,945,600$146,323,139$4,877,4382.70.4%
Crypto Bridge$9,990,000$13,774,782$459,15921.80.3%
CobinHood$9,360,000$35,531,872$1,184,3967.90.3%

Weighted Average Market Value/Avg.Volume multiple = 7.19

BBOD is planning to be launched in the coming weeks, thus we cannot assign an actual volume to the calculated multiple. The only way to assess the price of the BBD token is to present the hypothetical range of volume we can expect based on the average volume from similar exchanges.

We calculated the Avg. Daily Traded Volume of all relevant margin trading platforms. (Table 7)

Table 7. Main competitors and their Avg. Daily Notional Traded Volume

NameAvg. Daily Volume
Bitmex$800,000,000
Huobi DM$400,000,000
Okex Futures$300,000,000
Bitfinex$140,000,000
Deribit$50,000,000
Predicted BBD Price = (WA MV/Vol * Avg. Daily Volume) / Total Supply

Table 8. Estimated BBD token valuation based on Avg. Daily Volume

Avg. Daily VolumeProjected BBD PriceTotal SupplyMarket Value
$20,000,000
$1.23117,382,569$143,396,338
$50,000,000$3.06117,382,569$358,490,846
$100,000,000$6.13117,382,569$716,981,692
$200,000,000$12.26117,382,569$1,433,963,385

Thus, our estimation of 12-month EFV* for the BBOD tokens is in the range of $1.23 – $12.26 per BBD token depending on the traded volume. (Table 8)

*Estimated Fair Value

Please note, that the above valuation is based on the Total Supply of the BBD token. If Max. Supply is taken into consideration, our estimation of 12-month EFV for BBOD tokens should be multiplied by 0.426 (the ratio of Total Supply/Max. Supply) However, we cannot be certain that the remaining tokens are migrated (users might have lost their private keys or simply do not want to migrate their token in the near future).


Conclusion

We believe that due to the unique features of the platform, such as high-speed leveraged altcoin trading, stablecoin deposits and non-custodial client accounts, BBOD will start to capture a substantial share in the market segment of leveraged trading platforms

Overall, for the reasons listed below, BBOD Research affirms its view that:

  • In comparison to many other exchanges, BBOD collects all trading fees only in BBD tokens which could create instant and substantial demand for BBD.
  • Tokens of decentralised exchanges (Bitshares, Ethfinex, Crypto Bridge) are priced more favourably by the market with the average MV/Vol ratio = 366.2.
  • The combination of decentralised features with the addition of the highly leveraged altcoin futures contracts offering may induce an additional premium by market participants.
  • The BBD token price shall be resilient to short and mid-term fluctuation in the cryptocurrency market (as traders may go long or short) and should offer decent risk diversification for heavily skewed BTC/ETH/EOS portfolios given its lower correlation among the major coins.
  • The expected inflow of institutional money (hedge funds, family offices) shall result in high demand for USD-denominated funds for their clients. BBOD is perfectly positioned for this very likely event due to accepting deposits in TUSD.

Overall, based on our observations, the performance of leveraged trading platforms has been extraordinarily strong during the current bear market. The unprecedented drops in cryptocurrency prices that happened last year have created a unique environment for the potential of a dynamic bounce back. The favourable economic situation (the volatile crypto market) should create a strong demand for BBOD derivatives products which will result in demand for BBD tokens. New future developments like a vanilla options offering will, in our view, support the upcoming year’s valuation of the token.

We initiate a strong bullish stance towards the BBD tokens, Overweight, 12-month EFV in the range of $1.23 – $12.26 per BBD token depending on the traded volume.


Join our Glogal Community

Stay updated on the upcoming BBOD developments via our various social media channels:

Telegram: https://t.me/BBODCommunity

Twitter: https://twitter.com/BBODTrading

Facebook: https://www.facebook.com/BBODTrading

YouTube: https://www.youtube.com/c/BBODTV

Linkedin: https://www.linkedin.com/company/bbod


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 an 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: Decred (DCR)

BBOD Rating [10/12/2018]

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

Overview

Currency Code DCR
Transaction Start Date 06/02/2016
Total Supply 21,000,000
Circulating Supply 8,954,731
Protocol Type Blockchain Platform
Base Protocol DCR
Where To Buy/Trade BBOD, Binance, Bittrex, Poloniex, Huobi

Problem to Solve


Decred is an open-source decentralised cryptocurrency that is primarily concerned with ensuring community input is consistently valued by utilising an open governance model which is supported by sustainable financing for project development. Such a philosophy was born out of Bitcoin pioneers, specifically the engineers of the widely adopted btcsuite, becoming frustrated with the inefficient and unfair means by which updates to the Bitcoin protocol were being implemented. The Decred founders saw weakness in this approach and believed it could be improved upon by creating a level playing field for both miners and users in order to mutually benefit the network. Thus, Decred is an immutable currency which aims to be a store of value or medium of exchange, much like Bitcoin, whilst placing decentralisation of governance to community participants above the influence of centralised mining corporations and key developers.

Governance

The formation of Decred was a direct consequence of early Bitcoin developers experience with the governance model which was ingrained into the Bitcoin network from its inception. Such a system was designed in a way that placed Bitcoin Core developers and Proof of Work (PoW) miners at the centre of the ecosystem, assigning the majority of power to these large actors, who then had the ability to veto any change to the consensus rules they deemed unprofitable or that did not fit with their vision of the distributed network. Essentially, this gives minimal to no influence to smaller network participants who wish to implement changes they believe to be beneficial to the wider community or the Bitcoin protocol itself. Whilst some might argue that placing power in the hands of the wider community could lead to a dilution of ideas to less experienced parties, the ultimate purpose of a decentralised network is to serve each and every member of its community. Bitcoin has proved otherwise with prolonged disputes occurring between powerful centralised parties whilst ignoring the opinions of the actual users of the network, notably resulting in a contentious chain split which many network participants fundamentally disagreed with as such a move ultimately dilutes the network.

Funding

Bitcoin was funded entirely by donations up until 2014 and today there are no such rewards for developing the open-source protocol. This leaves early developers who likely profited from the exponential price increase of Bitcoin with the freedom to work on the project without the need for financial means, whilst excluding others developers who were late to the ecosystem. There is no system in place where a developer can claim expenses for contributing to the Bitcoin project and thus this excludes a large proportion of highly qualified developers from participating, centralising the power of decision making once more.

Mining

Although the PoW protocol implemented to mint Bitcoin has proven to be incredibly robust over the years, with no majority network takeovers occurring since the project was launched, as the mathematical problems become increasingly more complex the situation may change. This is the result of continuously needing to improve upon already incredibly expensive computational hardware in order to keep pace with mining competitors. In recent years we have seen this effect start to take place, with large centralised corporations such as Bitmain mining a large proportion of the Bitcoin network. As such large corporations continue to profit and grow, making the possibility for over 51% of the network to be mined by one centralised party increasingly more apparent. Ultimately, if achieved this would allow such a centralised authority to censor and implement updates to the bitcoin protocol as they see fit, completely going against the idea of a decentralised, censorship-resistant, immutable currency.

Solution


Governance

In stark contrast to Bitcoin, Decred ensures all stakeholders have the ability to influence decisions regarding the project by allowing them to vote on specific agendas and proposals that will be implemented to the Decred Blockchain. In order to become a Decred stakeholder one must simply own their native token DCR. Such decisions include aspects such as whether the development team should start working on a specific feature or not, whether to deploy a feature which has already been completed and even how to fairly split the development subsidies provided. This governance model allows for an entirely decentralised approach which ensures that no party has considerable influence over any other in the ecosystem. Miners and key developers must respect the decisions made by the stakeholders as they do not possess a majority share of the project. This allows for a more organic growth strategy which is inclusive of all parties constructive concerns and needs. As a result, Decred became the first cryptocurrency to implement changes to their Blockchain based on an automatic user voting approval in June 2017. Moreover, utilising this community-driven approach has allowed Decred to implement consensus changes much quicker than most other Blockchains, specifically Bitcoin’s, supporting the Lightning Network before Bitcoin and allowing a transaction to expire after a set period of time in order to keep avoid Blockchain bloat. Ultimately, Decred’s governance model is far more just than Bitcoin’s, allowing all stakeholders to have their voices heard and not ignored, creating a fairer ecosystem where everyone who is invested in the project can participate or affect the direction of future developments.

Funding

Uniquely, Decred’s Blockchain assigns a portion of miner fees to a development treasury which is distributed accordingly to those who wish to contribute to the project. This decentralised funding model allows anyone with an idea to contribute to the project by simply submitting a proposal and then if that idea is implemented they will be rewarded for their work. Such an approach is fundamentally different from most open-source projects, such as Bitcoin, which allow users to submit proposals but do not compensate them for their hard work. Instead, simply allowing one to build prestige in the developer community off the back of successful work. This opens the doors to a much larger pool of talent than possible with most unpaid open-source projects which simply cost those who do not have the means to work for free out of the market. Moreover, individuals can produce work which is not necessarily computer science-based, instead, they can apply more general skills such as marketing to help the project flourish and still receive compensation for work. Ultimately, business decisions will be decentralised amongst the wider community who support the project, distributing the power of decision making to a diverse set of individuals, avoiding centralisation of authority at all costs.

Mining

From the offset, Decred insured that their innovative hybridised consensus system was fair for both miners and stakeholders. This why they choose to implement Proof of Activity (PoA), likely influenced by Mackenzie’s (2013) whitepaper which proposed a PoA consensus mechanism. PoA involves a balance between both Proof of Work (PoW) and Proof of Stake (PoS) consensus algorithms. To this end, they have allocated 60% of the block reward to PoW miners, who serve the same purpose as in Bitcoin, 30% of the block reward for PoS voters, who keep check of PoW miners and can vote on important decisions and 10% to the treasury to incentivise the community to participate in project development. Typically PoW miners need to have spent a considerable amount of money on computational infrastructure and exert extreme control over a network, by introducing PoS additionally, network participants with much less financial means are able to keep a check on the work that the PoW miners are carrying out. This dilutes power from the PoW miners to PoS workers and decreases the likelihood of any network takeovers occurring as a result. Ultimately, Decred ensures that via a distributed mining consensus mechanism those who usually yield considerable power by owning expensive infrastructure cannot take over the majority of the network, whilst allowing individuals to participate in the project without needing excessive funds.

Catalysts


Community-Driven: The underlying strength of Decred lies in its commitment to ensuring the community has a strong influence over all aspects of the development of the project, whether that be allowing all stakeholders to vote on implementations to the protocol or supporting those in the community who wish to promote the project. This strategy ensures a diverse set of opinions are accounted for, and that a few large actors cannot control the direction of project development.

Team Of Pioneers: The team behind the project were the engineers behind btcsuite, a well regarded open-source project made for Bitcoin which has now been adopted by many other cryptocurrency projects. As some of the key members in the development of Bitcoin, they possess a true understanding of the successes and failures of the project. Thus, Decred takes a unique community-driven approach to achieve true decentralisation rarely seen elsewhere in the industry.

Risk Factors


Competing With A Titan: Ultimately, if Decred wants to see wide adoption then it has to draw from the community of Bitcoin, this is no easy task but may become easier with time as people begin to realise how centralised the decision making of Bitcoin has become since it’s inception. A large-scale event such as Bitmain taking over more than 51% of the Bitcoin mining activity could spark this realisation.

Belief In Your Community: As decred is community driven, the ultimate direction of the project is driven by who participates. This cannot be controlled, stopped or censored which is the essence of decentralisation. Whilst this is appealing to many early adopters within the cryptocurrency ecosystem, those who invest in the project moving forward must have belief in their fellow community members as well as the underlying fundamentals of the project itself. Despite this, it is difficult to question the direction the community has driven the project so far.

Conclusion


In a market where centralisation of power seems to be becoming an ever more prevalent force, Decred appears to be one of the few cryptocurrencies that continues to uphold the decentralised nature of the initial idea. By allowing members of the community to participate in the project in various ways including voting, mining and paid work contributions, Decred has created a vibrant community of incredibly knowledgeable and talented individuals avoiding the need for a centralised decision maker. Such a diverse set of opinions has allowed the project to quietly flourish, implementing changes to the Decred protocol much quicker than when centralised actors determine the direction of a project. This is true decentralisation in action. Thus, if the project can continue on its current trajectory whilst Bitcoin continues to become more centralised, it could become a direct competitor. Certainly, one to watch as the market matures.

Trade! Go Long or Short with leverage on Decred/TUSD


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


Join Our Global Community 👫


Stay updated on the upcoming BBOD developments via our various social media channels:

Telegram: https://t.me/BBODCommunity

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Facebook: https://www.facebook.com/BBODTrading

YouTube: https://www.youtube.com/c/BBODTV

Linkedin: https://www.linkedin.com/company/bbod


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 an 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.

Ethereum White Paper Explained. Part 3

Ethereum White Paper, Explained. Part 1 & Part 2 aimed to help you understand how the Ethereum ecosystem works, now let us delve into the applications of the Ethereum Platform.

Ethereum has three main applications.

  • Financial Applications

These include currencies, derivatives, contracts, wallets, wills and could even include employment contracts.

  • Semi-Financial Applications

This category involves partial inclusion of money along with a non-monetary aspect. An example would be automatic bounties on finding solutions to computational problems.

  • Governance

Online voting is a possible use case for the Ethereum ecosystem.

 

Token Systems

Tokens have numerous use cases for sub-currencies such as USD, gold, equity, property, coupons and even tokens with no conventional means of value which might be used for incentives. Token systems are quite easy to be implemented on the Ethereum platform. The logistics involved on how the tokens work is well explained in Part 1 & Part 2. The ledger subtracts units from one account and enters units into another.

You can find the basic code implemented in Serpent below:

def send(to, value):
if self.storage[msg.sender] >= value:
self.storage[msg.sender] = self.storage[msg.sender] – value
self.storage[to] = self.storage[to] + value

This is an implementation of a state transition function that works as a banking system. You enter a few lines of code to program conditions of how the currency units are distributed or for numerous other use cases.

 

Financial Derivatives and Stable-Value Currencies

Financial derivatives are one of the most common applications of smart contracts. They are quite easy to be implemented in code as well. One challenge here is implementing contracts that can refer an external price ticker.

Consider the following example:

A smart contract that hedges against the volatility of ETH with USD as the base currency. This application, however, requires one to know the value of ETH/USD traded on an exchange. This can be done by a data feed that is maintained by a third party designed such that the third party can update the price of the contract as and when needed. Other contracts can ping the data feed and get back a response that provides the price.

The contract would look as mentioned in the Ethereum white paper and is pretty much self-explanatory.

  1. Wait for party A to input 1000 ether.
  2. Wait for party B to input 1000 ether.
  3. Record the USD value of 1000 ether, calculated by querying the data feed contract, in storage, say this is $x.
  4. After 30 days, allow A or B to “reactivate” the contract in order to send $x worth of ether (calculated by querying the data feed contract again to get the new price) to A and the rest to B.

Such contracts have high impact use cases in crypto-commerce. Most users stay away from cryptocurrency due its high volatility. Users want the security and convenience of cryptocurrencies, however, the idea of losing 10%-20% of value in a single day is unpleasant. The most common solution used up until now are issuer-backed assets. The idea involves creating a sub-currency that they hold the right to issue, revoke and provide units of the currency to a seller who provides them with one unit of another asset. For example, these assets could be Gold or USD. Although they can be modified to accept a vast number of assets as well. The issuer then exchanges one unit of the sub-currency to one defined unit of the physical asset. This allows numerous different assets to be converted into cryptographic assets and exchanged for value. However, it all depends on the trust and reliability on the issuer.

Cryptographic financial derivatives act as our knight in shining armor in this scenario. They provide an alternative. Instead of a single issuer, we can use a market of traders betting on the price of a decentralised asset like ETH. Speculators do not default while trading as the smart contract holds their funds in escrow. However, this source is not fully decentralised, as we rely on a third-party source to provide the price of ETH. This is still a major improvement and reduces the potential for fraud when compared to issuers that cannot be trusted.

 

Identity and Reputation Systems

Namecoin was one of the first alternative cryptocurrencies that tried to use a Blockchain similar to Bitcoin to provide a name registration system. This allowed users to register their names in a public database with other data. Other use cases include mapping domain names to an IP Address, email authentication and advanced reputation systems.

The following code is for a Namecoin like registration system on the Ethereum network:

def register(name, value):
if !self.storage[name]:
self.storage[name] = value

The smart contract programs a simple database inside the Ethereum network where data can be added, but not modified or removed. Thus, maintaining the immutability feature of the Ethereum platform. Any registration made against a name with some value will be stored on the blockchain forever. A sophisticated program may allow other smart contracts to query and fetch data from it, it may also allow the owner to change or transfer ownership.

 

Decentralised File Storage

There are numerous popular online storage services. Services like Dropbox, Google Drive let you upload a backup of your hard drive on to their centralised servers for a monthly fee. Sure, they have a free storage facility up to a certain size limit, but most the data that we need to store on the cloud exceeds this free storage. Ethereum contracts provide a much better tradeoff for developing decentralised file storage ecosystems, where users can earn money by renting out the free space on their own hard drives.

An example of such a contract on the Ethereum network would work as follows:

  1. Data is split into blocks, encrypted and a Merkle tree is built.
  2. Every N blocks, the contract picks a random index in the Merkle tree, then gives some ether to the first entity to supply a transaction with a simplified payment verification; like proof of ownership of the block at that index, in the Merkle tree.
  3. If the user wants to download their file, they may use a micropayment protocol. This can  be as low as 1 szabo per 32 Kilobytes.
  4. To pay less gas fees, the payer would replace the transaction at the end of 32 Kilobytes with a slightly more lucrative one in order to fetch more data.

It might seem like trust is distributed among random nodes so that the file is not forgotten, but this risk can be reduced by splitting the file into many pieces and watching the contracts to check if each piece is still in some node’s possession. If there is enough ether in the contract and it is still paying out money, that is enough proof that the file is still stored somewhere according to the programmed protocol.

 

Decentralised Autonomous Organizations

The concept behind a DAO (“Decentralized Autonomous Organization”) is that a certain set of members or shareholders, perhaps with a 67% majority, may spend the funds of the entity and modify its code. Members will come to a collective decision on how to allocate the funds of the organization. This may range from bounties, salaries, to even more complex mechanisms like rewarding internal work. It tries to replicate the functioning of a company by using only Blockchain technology as the solution. Most discussion surrounding DAOs has focused on the capitalist model of a DAC (Decentralized Autonomous Corporation) with shareholders who receive dividends. An ideal alternative, however, is a Decentralised Autonomous Community where all members have a share in decision making and where they require at least 67% of existing members to add or remove a member.

Following is a general outline of how to code a DAO. A simple design is a piece of code that can modify itself when two thirds of members agree on a change. The code is immutable, however, there is a work around. Code can be divided into separate contracts having de-facto mutability and the addresses of each contract can be stored in mutable storage. This would allow us to mix and match code from smart contracts in order to change the code. There would be three transaction types as mentioned in the Ethereum White Paper:

  • [0,i,K,V] to register a proposal with index i is to change the address at storage index K to value V
  • [1,i] to register a vote in favor of proposal i
  • [2,i] to finalise proposal i if enough votes have been made

The contract would store clauses for each of these. It would maintain a repository of all open storage changes along with the list of people who voted for them. This would accompany a list of all members. Whenever a storage change would get the bare minimum of the members voting for it, a final transaction would execute the change. Further sophisticated features would include built in voting ability for sending transactions, adding/removing members, delegation of votes, etc. This would let DAOs grow as a decentralised community.

 

Further Applications

There are numerous applications on the Blockchain and following are a few instances:

  • Savings Wallets

Alice wants to keep her funds safe but worries that someone might hack her private key, or she might lose it. She transfers ether into a contract with Bob who will act as a bank in this scenario.

  • Alice alone can withdraw a maximum of 1% of the funds per day.
  • Bob alone can withdraw a maximum of 1% of the funds per day, but Alice can make a transaction with her key, shutting off this ability.
  • Alice and Bob together can withdraw anything.

Normally, 1% per day is enough for Alice, and if Alice wants to withdraw more she can contact Bob for help. If Alice’s key gets hacked, she runs to Bob to move the funds to a new contract. If she loses her key, Bob will get the funds out eventually. If Bob turns out to be malicious, then she can turn off his ability to withdraw.

Such conditions can easily be programmed into an Ethereum smart contract.

 

  • Crop Insurance

A Financial Derivatives contract can be made using a data feed of the weather instead of a price index. A farmer purchases a derivative that pays out inversely based on the precipitation in any selected area. If there is a drought, the farmer gets paid and if there is rain, crops will do well which implies the farmers business is safe. Farmers can essentially hedge their businesses. This use case can be expanded to natural disaster insurance as well.

 

  • Decentralised Data Feed

There is a protocol called ShellingCoin that lets you decentralise data.

The working of SheelingCoin is mentioned below:

N number of parties enter the value of ETH/USD in a system and everyone between the 25th and 75th percentile get rewarded with a token. This way, any person will only get the incentive if they give the answer that everyone else provides. Theoretically, this protocol can create any number of values.

 

  • Smart Multisig Escrow

Multi signature transaction contracts are where, for example, at least 2 out of 3 keys are mandatory to spend the funds. On the Ethereum platform a lot of more complex conditions can be programmed. Being a Turing complete language, the programming capabilities of Ethereum are limitless.

 

  • Cloud Computing

Ethereum can also be used to create a computing environment, which will allow users to carry computations on other systems on the Ethereum Blockchain, optionally also asking for proofs for computations done at random checkpoints. This allows creation of a Cloud Computing market where anyone can participate. This kind of computing, however, is not suitable and recommended for all tasks

 

  • P2P Gambling

Peer to Peer Gambling protocols can be implemented on the Ethereum Blockchain. There are numerous Ethereum gambling websites that are already exist.

 

  • Prediction Markets

Prediction markets are also easy to implement. They allow you to bet on the prediction of a certain outcome and which is then verified on the Blockchain and those who predict correctly are rewarded.

 

  • On-Chain Decentralised Marketplaces

Such marketplaces use identity and reputation systems as a base.

 

This concludes the third part of the Ethereum White Paper series. Stay tuned for more updates on the BBOD and follow us on Twitter.

Bitcoin Scarcity: Perception Vs. Reality

Earlier this year the press flooded the internet with articles stating that only 20% of total Bitcoins remained to be mined, causing a frenzy of fear of missing out for those who were not already invested. They were correct, 80% of the total fixed supply of 21 million Bitcoins set by mysterious Satoshi Nakamoto was now accounted for, with the 16.8 millionth transaction occurring on the 13th of January 2018. Despite this, many news outlets failed to convey how that, with time, Bitcoins would become increasingly more difficult to mine as a result of minings inherent complexity and the diminishing reward scheme over time. As a result, many have suggested that a vague approximation of the last Bitcoin block to be mined will take place in 2140. This article aims to ensure that market participants are aware of the facts surrounding Bitcoins fixed supply, the evolution of mining Bitcoin and how scarcity, or the perception of it, could affect demand in the future.

Bitcoins 21 Million Hard Cap

Unlike in traditional nation-state economies, Bitcoin operates in an entirely decentralised manner with a fixed supply. Whereas a central bank usually issues currency as they wish – according to the growth of the number of goods which are being exchanged in the economy (commonly known as Quantitative Easing). Bitcoin is produced at a predetermined rate defined by the initial algorithm that was implemented by its anonymous creator. The algorithm has set rules which cannot be altered. As such, how the currency is created and at what rate was inherently finalised at inception. Hence, one can be certain that only 21 million Bitcoins will ever be created.

The certainty of the fixed supply of 21 million Bitcoins can be explained as follows. Bitcoins are created every time a miner discovers a new block. Since the first block on the Bitcoin Blockchain was created (otherwise known as the Genesis Block), the rate that blocks have been mined has adjusted every 2016 blocks in order to maintain a two week adjustment period, as six blocks are created per hour. The total number of Bitcoins generated per block is predefined to decrease every 210,000 blocks by half, equating to approximately four years. These predetermined conditions mean that the rate of new Bitcoin created exponentially slows down over time and ensures that no more than 21 million Bitcoins will ever be created.

(Source: Controlled Supply: Timeline Estimation)

 

The intentional decreasing supply algorithm was chosen in order to introduce the concept of digital scarcity to the cryptocurrency. Certain individuals compare Bitcoins scarce attributes to precious metals such as Gold. For instance, as time passes large quantities of Gold are becoming increasingly impossible to find without large-scale investment. This process continues until the cost of sourcing Gold almost outweighs its market value. Capturing this phenomenon in the digital sphere is no easy feat and thus scarcity is one of the defining characteristics of Bitcoin. It should be noted that the concept of scarcity is not widely seen in the cryptocurrency marketplace, projects like Ripple, Nem and Lisk released all coins into the market at once.

The Evolution of Bitcoin Mining

To continue the analogy of Gold, in order to obtain the raw material huge amounts of physical effort must be expended to mine the scarce asset. In Bitcoin, this equates to the large amount of computational power which is necessary to solve extremely complex mathematical problems in order for a new block to be created. Hence, those who endeavour to solve such challenges are coined ‘miners’.

As discussed previously, every 210,000 blocks miners receive half the reward for solving a new block. When Bitcoin was originally created in 2009, miners received an astonishing 50 BTC for solving a block as a reward for being innovators within the space, albeit with much easier equations to solve. For instance, when Bitcoin was first released in 2009, an average retail computer would have been able to mine approximately 200 BTC in a few days. Nowadays, it would take the same computer 98 years to mine just 1 BTC. As a result, such mining is not as available to retail clients as it was previously. Instead, more industrial institutions have moved into the market with Application Specific Integrated Circuit (ASIC) computer configurations to maximise the amount mined. This truly displays the exponential increase in difficulty in a relatively short space of time.

(Source: Controlled Supply)

Today, miners receive 12.5 BTC as a reward for solving a new block. The next ‘halving’ event is expected to take place in 2020. As this process unfolds, miners will receive less and less reward for the blocks they create whilst the equations they need to solve will become increasingly complex, thus requiring much more computational effort and expense. This intentional paradox implemented by Satoshi ensures that the supply of coins cannot rise too quickly. As previously stated, the last block will be mined in approximately 2140. Consequently, with Bitcoins supply remaining constrained until 2140 and demand likely continuing to rise, as a result of Bitcoins scarcity amongst numerous other factors, the value of Bitcoin is almost certain to increase exponentially over time. This ensures that Bitcoin is an excellent store of value, once again similar to Gold.

How Scarcity Affects Demand

Undoubtedly, scarcity has had a great impact on the demand for Bitcoin and this will feed into the self-perpetuating snowball effect as time goes on and supply continues to decrease. As with any limited supplied asset, when the underlying resource becomes harder to source, the scarcity of supply causes significant demand for the market when the asset is perceived to have value. As previously suggested and widely acknowledged, Bitcoin is now viewed as a desirable store of value comparable to Gold. Thus, with only 21 million Bitcoins ever to be created, the market shows, or certainly will in the future, a significant gap between the number of individuals who wish to purchase the asset and the amount available. As this process unfolds, digital scarcity will make Bitcoin exponentially more valuable over time.

To further perpetuate this, individuals perception of Bitcoin scarcity over the actual reality will only increase the rate of adoption. It won’t be long until we see headline articles stating that only 15% of all Bitcoins ever to be created have been already been mined. No doubt the masses will hoard the asset once more, before they feel it is too late. The fact of the matter is, as displayed in this article, the supply of Bitcoin rapidly slows down with time, as the complexity of solving blocks becomes increasingly difficult and miners are rewarded less. Bitcoin will continue to be mined until the approximate year of 2140. Hence, there is still plenty of time to invest. As Bitcoin continues to be recognised as a store of value and understood and adopted by the layman, one may wish they invested sooner rather than later.

Conclusion

This article has aimed to bridge the gap between one’s perception of the scarcity of Bitcoin and the actual reality of the matter. There is no denying that the majority of Bitcoins have already been mined, yet the excellence of the mysterious creators’ code ensures that supply cannot be created too quickly. This inherent attribute makes Bitcoin an excellent store of value, akin to Gold, yet in the digital sphere. Something truly pioneering and unique in our digital world. Instead of investing for the fear of missing out, perhaps we should marvel in the astonishing technology behind the project itself. Either way, one can be certain that the price of Bitcoin will increase as its supply slowly decreases whilst people perceptions remain unchanged.

Check out the BBOD Research Blog for more similar articles.

BBD Token Overview

Blockchain Board of Derivatives (BBOD) will launch their cryptocurrency trading platform in December 2018.

Below we present basic information about BBD token and a few advantages you can expect from participating in the purchase of BBD tokens.

Basic data

Contract #: 0xb79fc5505ea4f3b920ee7e3349de064226692717

Circulating Supply: 117,282,569 BBD (as of 07 December 2018)

Total Supply: 275,803,582 BBD

What are BBD tokens?

BBD is an ERC-20 token issued by BBOD. Just like BNB coin by Binance, when you use BBD to trade on BBOD, you save a considerable amount of money on the trading fees.

How / where I can buy BBD tokens?

BBD tokens will be available to buy or sell on BBOD trading platform in December 2018.

Owning BBD tokens offers multiple benefits for investors and traders.

Traders may use BBD to pay for trading fees and they can expect a discount on trading fees.

Other benefits under consideration include:

  1. access to the periodic ‘TUSD Lottery Bounty Program’ (eg. 1 BBD token — one lottery ticket)
  2. And more, more, more!

Join our global community 👫👭👬

Stay updated on the BBOD launch date and BBD coin first listing date.

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Blockchain – Value Proposition

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Considering you now have a basic overview of how blockchain works from our previous blog post, let us dive into the possible use-cases of this beautiful technology. I am not over exaggerating when I call it beautiful, because once you understand the sophistication of this tech, you will go head over heels too.

To understand why blockchain is so important and why most people swear by its applications, let us understand the use case of blockchain in the transfer of value/cryptocurrency.

Exchange of value has been happening ever since human civilization began. Early humans used to barter goods to express value. Then came cowry shells and precious metals like gold, silver, etc. Value exchange is based on consensus and trust.

To understand this concept, let us consider the following example:

Suppose you have a handful of cowry shells, a couple silver coins, and some standard American dollars. You manage to build a time machine which takes you into the past and you go on a journey equipped with cowry shells, silver coins, and some USD.

Pre-Medieval Markets

In this pre-medieval market of the past, you approach a rice seller and offer him a couple USD. He looks at you strangely and throws away this bizarre-looking piece of rectangular paper. You hurriedly fetch the USD because you know it’s worth a lot more in modern markets than this rice seller considers it to be.

You then offer him some cowry shells. This is instantly recognized by the rice seller and he offers you a bag of rice in exchange.

Medieval Markets

You now travel to Medieval Europe again and offer the European rice seller a couple hundred USD sporting Benjamin Franklin. You are pretty certain that this rice seller could not possibly deny a couple hundred USD for a measly bag of rice!

This rice seller is also confused about your strange behaviour and tries to shoo you away. You then offer him a couple of silver coins and he parts with a bag of rice willingly.

Modern Markets

You come back to present day NYC and call your online grocer to ask if they accept cowry shells or silver coins instead of USD (because you have spent all the money you had in the medieval markets and in building a time machine). The grocer calls you several unpleasant things and hangs up.

Now on further inspection of these situations, you realize that markets at a particular time in history only accept a certain commodity as an exchange for value. If people do not know about different currencies as value stores, there is no consensus between buyers and sellers on the underlying value of a commodity. Because of a lack of trust, there is no transfer of value and an active trading market ceases to exist.

Cowry shells have value in pre-medieval markets because there is enough liquidity for them as both buyers and sellers trust in the prevalence of cowry shells.

People in medieval Europe believe in Silver because the sovereign issues silver coins and the general population trust in the sovereign to protect their assets and rights.

Similarly, people in current market places trust the USD because it is backed by the government of the United States and people trust the USA to uphold the value of their currency.

There is a grave problem emerging here. If you notice, as time progresses, centralised institutions like Sovereigns and Governments often tend to have higher control and monopoly over the transfer of value. This is beneficial for governments but is a huge red flag for the general public. The concentration of power in the hands of a few often leads to disastrous events, history is proof.

Future Markets

Blockchain disrupts the centralisation of trust by creating a distributed ledger that is not owned by a central authority. Instead, the decentralized trust mechanism is facilitated by millions of machines throughout the world by expending processing power using electricity. Like other markets, when we have buyers and sellers of a particular currency and they attain a consensus on how much a particular currency is worth, we have a post-modern cryptocurrency market.

Here the value of cryptocurrency is determined by the unique value it offers and how much the buyers and sellers think the system is worth. Such cryptocurrency marketplaces have the potential to obliviate several aristocratic legacy systems that only hinder progress. Blockchain Board of Derivatives is one such cryptocurrency marketplace.

The two biggest cryptocurrencies are currently Bitcoin and Ethereum.

Bitcoin’s value proposition is the pure exchange of value. It acts as a virtual currency specifically for value transfers.

Ethereum, on the other hand, can be used for the exchange of value along with a number of other promising use cases. One of them is smart contracts. Smart contracts enable you to program a set of predefined conditions in the blockchain to perform a certain task on the trigger of an activity.

Possession of property

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A simple example of this could be possession of a property. The smart contract acts as a facilitator between the buyer and seller. The buyer transfer funds into the smart contract and the seller transfers relevant titles of property. The smart contract holds information transferred by both parties in escrow, validates it on the decentralized network and facilitates the transaction only after sufficient confirmations

 

This is just one example of a use case developed on the Ethereum protocol. There are countless applications that can be developed using this powerful system. We will discuss the Ethereum White Paper in-depth in upcoming blog posts which will reveal how the Ethereum protocol works.

Apart from Bitcoin and Ethereum, there are numerous other cryptocurrencies and blockchain systems in the market and each has a unique use case that they propose. Blockchain has the potential to revolutionise almost all centralised trust based legacy systems.

Blockchain technology is truly the future and BBOD is committed to being at its helm.

Blockchain – Introduction

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This article is a brief introduction to the world of Blockchain. You might have read Blockchain related articles or come across discussions on how Blockchain is going to change the world. Centralised institutions are either defensive or accepting of this disruption by defining their own terms.

 

So, what is all the fuss about? Let’s understand blockchain in its raw form.

Blockchain is a distributed database system. This means instead of storing files on a single computer, information is stored across millions of computers all over the globe.

FACEBOOK AS A CENTRALIZED ENTITY

When we log in to Facebook, all the content that we and our friends share on Facebook are stored in Facebook’s central server. Facebook technically owns all that data (even though they claim that they don’t own our data); they use that data to directly target ads towards us.

Blockchain technology disrupts this and gives users the power to control their personally identifiable information.

DECENTRALISED, DISTRIBUTED AND CENTRALISED SYSTEMS

The diagram shows three images sourced from Wikipedia.

 Source : Wikipedia

Source: Wikipedia


The first image depicts a centralised repository like Facebook, Google, Amazon, etc. where one central entity controls all information.

The second image is a decentralised system where a few nodes maintain the solidarity of the network through mutual consent yet allow free nodes to live by storing minimal data.

The third image is a distributed system where each node on the network will absolutely need to store all the information that is present in the network.


In the first image, if the central node is compromised, the whole system breaks down. But in decentralised and distributed systems, these kinds of attacks are impossible as at any given point in time, there are multiple copies of information throughout the network.

CONFUSED?

Well, the below example will clarify this concept.

Suppose Alice is transferring $100 to Bob via a traditional bank transfer. They both have an account in the same bank. When Alice initiates the transaction, the bank has a central database which deducts $100 from Alice’s account and adds $100 to Bob’s account. Now, this isn’t an ideal scenario because banks usually charge transaction fees

If something happens to the bank’s central database and that transaction is lost, neither Alice nor Bob get the $100. There are backups and safeguards in traditional banks to help prevent this, but this is still a very valid scenario. In case of a cyber-attack, all our funds in centralised servers are at tremendous risk. We as account holders, acknowledge and accept this risk because of the trust we have in these banking institutions.

Now, what if I told you, blockchain prevents all of this by creating a decentralised value exchange system with 100% uptime and a distributed trust system which is extremely difficult and highly improbable to crack.

In a distributed ledger system, once Alice initiates a transaction, all the nodes in the network confirm the transaction and the ledger is written in stone. It is immutable, and the transaction is secured. Even if an attacker tries to compromise one node, the transaction is still present in another node and to modify the transaction only in one node is still extremely difficult.

To change the details of one transaction, the attacker must modify all the following transactions in hopes of generating an alternate chain faster than the honest chain which is being processed by miners. Miners are facilitators of the transactions in the blockchain. They verify each transaction that comes across to their respective nodes by solving computationally difficult and processor intensive puzzles. The attackers’ transactions will not go through as honest nodes will reject transactions and blocks that are invalid. The attacker needs ample processing power to overcome the cumulative processing power of honest nodes which is highly improbable to achieve in well-established blockchain systems.

We will discuss more on Mining along with Public Keys and Private Keys (your crypto username and password) in future posts.

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BLOCKCHAIN AS A CHAIN OF BLOCKS

Blockchain, as the name suggests, is a chain of blocks that are linked together one after the other. All nodes on the network have the full replication of all transactions that have taken place on the blockchain ever since the genesis block was mined. The ledger is open and the transaction between accounts will be displayed on the ledger for the whole world to see.

The transactions are cryptographically encrypted and the digital signature of one block is used to encrypt the next block. This is a perpetual system and to modify one transaction in the ledger is impossible. If an attack is tried, cryptographically encrypting all future blocks is computationally and economically a very expensive task.

We hope you now have a basic idea of what blockchain technology is all about. The implications of this technology are far and wide and will soon be at the helm of all trust-based systems.

BLOCKCHAIN – AS MANY HAVE PREVIOUSLY SAID, IS THE NEW INTERNET.