Author Archive

The Real Discussion About Ethereum’s Next Hard Fork Is About to Begin

More than two dozen ethereum improvement proposals (EIPs) have been submitted for review and inclusion in ethereum’s next system-wide upgrade or hard fork, dubbed Istanbul.

The list – with 28 official EIPs and at least one other set to be added – include changes to the $27 billion network that impact its mining algorithm, code execution and pricing, data storage, and much more.

About a dozen of these proposals were discussed at length by ethereum core developers during a bi-weekly call on Friday. However, the majority ended up being tabled for further debate, with only one EIP receiving a tentative approval.

“We’ll talk more on the All Core Devs Gitter channel to wrangle in some of these EIPs that are still stuck in proposed and as quickly as possible decide on which ones are being implemented for Istanbul,” said Ethereum Foundation community relations lead Hudson Jameson before ending today’s call.

As noted by Jameson, the hard deadline for all Istanbul EIP submissions passed last Friday and now developers are working to reach agreement  about which proposed EIPs can be deemed officially “accepted.”

Decisions made

The one EIP to receive a tentative approval Friday was EIP 1108, which proposes a minor change to gas fees on the ethereum network. Developers emphasized that this proposal, while approved, requires benchmarking figures that will be presented at the next core developers meeting.

Alternatively, at least two other proposed EIPs look slated for delay.

Developer Rick Dudley explained that EIP 1559 – which introduces a new transaction fee model to ethereum – is “a pretty complicated change.”

Dudley further highlighted that it would most likely not be ready in time for Istanbul, which is scheduled for mainnet activation possibly as early as mid-October.

“[EIP 1559] we should assume that it’s possible that it will make it in [to Istanbul] but it seems unlikely right now,” said Dudley on the call.

The second EIP with a high potential for delay is EIP 1057. It is a proposed change to ethereum’s proof-of-work (PoW) mining algorithm, which since April of last year has been susceptible to mining by specialized computer devices called ASICs. With an estimated $655 million annual market for ethereum’s mining rewards, ASICs outperform graphics cards, or GPUs, which developers worry may lead to a more centralized mining landscape.

EIP 1057 proposes a revamped PoW algorithm known as “Progressive PoW” or ProgPoW in efforts to better leverage GPU-specific computing capabilities.

While approved twice in the last year by ethereum core developers, ProgPoW according to Jameson may face delay due to various logistical issues in organizing a third-party audit of the proposal.

“We ran into issues starting the ProgPoW audit,” explained Jameson in a Ethereum Magicians post yesterday. “We had a hardware partner who specialized in ASICs who was going to work with Least Authority to perform the hardware parts of the audit. They are no longer participating in the audit so we are looking for other auditors for the hardware portion.”

As such, Jameson proposed today that the EIP be held back from being in the approved category of EIPs until further details about the pending audit are sorted.

Looking ahead

The next official deadline for the Istanbul hard fork is merging accepted EIPs into existing versions of ethereum software called clients.

One EIP author, James Hancock, told CoinDesk that this step is akin to getting your code together so it can be fully tested.

“The suggestion is to have reference implementations in two ‘major’ clients,” said Hancock to CoinDesk. “The definition of major is pretty loose.”

Hancock also noted that he has put together an updated spreadsheet with all of the proposed Istanbul EIPs and their relative “readiness” for mainnet activation.

For now, the upcoming “soft deadline for major client implementations” is sometime in mid-July with an eventual mainnet launch slated for mid-October.

However, the envisioned timeline for Istanbul is a rather new creation that has never been replicated by previous ethereum hard forks. It was proposed by former ethereum developer Afri Schoedon and Ethereum Foundation developer Alex Beregszaszi as a way of breaking down hard fork process into “a fixed 9-month cycle.

As such, Ethereum Foundation grant recipient Alexey Akhunov wrote in the Gitter chatroom that everyone should be thinking and iterating upon the new suggested “deadlines.”

“I myself will be questioning all the deadlines from the point of view of ‘what is the purpose of this deadline?’,” said Akhunov. “Because this is the first time lots of these things are introduced, we are here to make sure that what we do is done for the reason and not because “someone says so”

For now, blockchain protocol engineer at Consensys Danno Ferrin affirms that at the very least, the list of proposed Istanbul EIPs “stops growing” and will in all likelihood begin shrinking.

And down the road, the software upgrade itself must be accepted by the nodes that underpin the ethereum network itself when the hard fork event actually occurs.

Ethereum image via Shutterstock 

Crypto Funds, Lending and Market Manipulation

Noelle Acheson is a veteran of company analysis and a member of CoinDesk’s product team. The opinions expressed in this article are the author’s own.

The following article originally appeared in Institutional Crypto by CoinDesk, a free newsletter for institutional investors interested in cryptoassets, with news and views on crypto infrastructure delivered every Tuesday. Sign up here.

It’s not easy being a crypto fund manager. As well as unruly markets and elusive valuations, there’s the increasing competition and pressure on fees. And performance has been lackluster: Vision Hill’s Q1 report showed that, on average, active funds have underperformed bitcoin so far this year.

The bear market of 2018 triggered the closure of many crypto funds, and a report released last week by PwC and Elwood Asset Management showed that there are far fewer active funds in existence than we had been led to believe.

The report also pointed out that, given a median management fee of 2% and a median fund size of $4 million, operational sustainability is tough: $80,000 recurring income is not enough to cover salaries and other overheads, especially given the likelihood of increasing compliance requirements.

The PwC/Elwood report mentions some steps that funds are taking to boost recurring income, such as market making and advisory roles.

It overlooks one potentially significant source of revenue, however: crypto lending. Funds could lend out the assets they hold, for a fee.

Given the growing demand for crypto lending services, this potential income stream could be enough to give a number of funds a greater chance of survival, as well as inject liquidity and diversity into the sector.

It could also, however, add hidden risk to the market overall.

Heading down

Before we look in more detail at this risk, let’s examine the trend toward lower fees.

According to the PwC/Elwood report, the median (mid-point) fee is 2%. This is in line with typical fees for “traditional” hedge funds. But there are signs that they are coming down. The report states that the average crypto fund fee is 1.72%, which means that many charge significantly less. This is also in line with the traditional sector, where fee pressure is already becoming the subject of headlines.

The pressure is even more acute in mutual and index funds, where fees are moving to zero or even lower. Last year, investment management giant Fidelity offered a mutual fund with no management charge. And earlier this month, the SEC greenlighted a fund from asset manager Salt Financial that promised negative fees.

Meanwhile, demand for crypto lending is growing at an astonishing pace, as the inflow of funds into lending startups and the demand from institutions shows. While there is no concrete data on the extent to which crypto funds lend out their assets, there are signs that this practice is spreading.

This has potential implications for the entire sector, both good and bad.

Heads up

On the positive side, increased lending of crypto assets could increase velocity and, by extension, price discovery as a greater number of transactions makes it easier for a market to express its views.

Furthermore, a growing demand for short selling, facilitated by asset lending, will to some extent enhance liquidity and help to develop a pool of natural buyers – all short sales have to be unwound eventually. This develops a “soft” floor for an asset price.

But “more liquid” does not necessarily mean “liquid,” and here is where the risk of market manipulation could seep in.

Let’s say I manage a crypto fund that has invested in altcoin A, and let’s say that I lend out part of my stake to counterparty A. In traditional finance, most securities loans can be recalled at any time – let’s assume that I can do the same here. I recall the loan of altcoin A, and counterparty A has to scramble to get it back to me. Whether counterparty A used the loan to sell short or lent it on to counterparty B, it will now have to buy the asset back in the market, probably pushing up the price by doing so.

Now, what if I knew that would happen, and used the recall as part of a strategy to boost my fund valuation? True, I probably couldn’t lock in the profit by selling altcoin A without pushing the market back down, but it could serve to fix a higher value on a certain date, which would boost my reported performance, which in turn could encourage more investment in my fund.

Plus, there’s the added benefit of knowing that the short sellers got squeezed, and the glory of my outperformance compared to those with a more negative outlook.

Obviously, if I got a reputation for doing this, no-one would borrow from me. And the drying up of that revenue stream could mean that I may end up having to liquidate my fund – just imagine what my dumping all of my altcoin holdings on the market (after recalling all loans) would do to other funds’ valuations.

Eyes open

One solution could be for investors to insist that the funds they back do not engage in this type of lending activity. But, given the difficulty of covering costs with declining management fees, that could make it less likely that compliant funds survive. And if the returns from lending boost fund performance, am I not obliged to seek the best possible return for my investors? Most investors in crypto hedge funds are themselves institutions, who are also judged by their performance. There is for now little incentive to insist on curbs on lending.

Regulation could come in and establish rules over transparency and oversight, as is happening in traditional finance. But regulators are still getting their heads around the crypto space, and are doing so at a cautious pace.

In the absence of clear rules, it is up to the sector to keep an eye on developments in both crypto fund administration and crypto asset lending. It is, after all, in its own interest to ensure a smooth and robust market.

But self-regulation has its own risks and is hard to execute in as opaque an activity as crypto asset lending. True, blockchain-based transactions are available for all to see – but most crypto asset lending is likely to take place off-chain, as an agreement between two parties.

However, letting the practice spread without some guidance could escalate systemic risk. As the traditional markets saw in 2008, the intertwined web of asset holdings through through opaque lending arrangements left institutions vulnerable and investors grasping at air.

Crypto markets have enough hurdles to overcome to reach mainstream acceptance. We shouldn’t let hidden risks that develop in front of our very noses to be one of them.

Lending image via Shutterstock

Bitcoin Cash Miners Undo Attacker’s Transactions With ‘51% Attack’

Two bitcoin cash (BCH) mining pools recently carried out what is known as a 51 percent attack on the blockchain in an apparent effort to reverse another miner’s transactions.

The move is tied to the bitcoin cash network hard fork that occurred on May 15. The two mining pools — and — carried out the move in order to stop the unknown miner from taking coins that they weren’t supposed to have access to in the wake of the code change. That day, an attacker took advantage of a bug unrelated to the upgrade (and subsequently patched) that caused the network to split and for miners to mine empty blocks for a brief time.

In the context of cryptocurrencies like bitcoin cash, a 51 percent attack involves an entity or group controlling a majority of the hash rate which thereby allows them to execute several things they aren’t normally allowed to do, such as attempting to rewrite the network’s transaction history.

It’s long been a controversial topic and other cryptocurrencies have suffered similar attacks due to a decline in their hash rates.

At one point did alone control more than 50% of the power. But and they were able to join together to reverse the blocks of transactions. According to stats site Coin.Dance, the two mining pools currently have combined 44% of bitcoin cash hashing power.

The interesting part of this particular attack on bitcoin cash, though, is that it was arguably executed in an attempt to do something ostensibly good for the community, not to reward the attackers or to take the funds for themselves.

But not everyone in the bitcoin cash community agrees. As one bitcoin cash developer, going by the moniker Kiarahpromises, put it in an article from May 17:

“To coordinate a reorg to revert unknown’s transactions. This is a 51% attack. The absolutely worst attack possible. It’s there in the whitepaper. What about (miner and developer) decentralized and uncensorable cash? Only when convenient?”

Anatomy of an attack

The inner details of the mining pools’ attack (as well as the attack that prompted the attack) are complicated.

“Since the original split in 2017, there has been a significant number of coins accidentally sent to ‘anyone can spend’ addresses (due to [transaction] compatibility of sigs, but no #SegWit on #BCH), or possibly they’ve been replayed from #Bitcoin onto the #BCH network,” bitcoin podcast host Guy Swann said, explaining the situation on Twitter.

But once one code change was removed during bitcoin cash’s May 15 hard fork, these coins were suddenly spendable “basically handing the coins to miners,” he added.

The unknown miner attacker decided to try to take the coins. That’s when and swooped in to reverse those transactions.

“When the unknown miner tried to take the coins themselves, [ and] saw & immediately decided to re-organize and remove these [transactions], in favor of their own [transactions], spending the same P2SH coins, [and] many others,” Swann went on.

But some bitcoin cash users argue this was the right thing to do.

“This is a very unfortunate situation, but it is also what proof of work actually is. The miners in this case did choose to drop prohashes block and from what I heard, it is because they deemed a transaction within it to have been invalid,” responded active bitcoin cash supporter Jonathan Silverblood.

Still, others think that this is a bad sign for bitcoin cash, arguing that the event demonstrates that the cryptocurrency is too centralized.

Yet the thread of a 51 percent attack is a concern shared across proof-of-work crypto networks (and as mentioned above, some blockchains have been left exposed due to falling hash rates). For example, half of bitcoin’s current hashing power is divided among just three mining pools according to stats website Blockchain.

Mining software image via Shutterstock

This article has been updated for clarity.

Swiss Telecom Company Is Bringing Crypto Collectables to TV

Telecommunications giant Swisscom has unveiled a new approach to using non-fungible tokens (NFTs).

The product, called Noow, will display art that you own and you and the artist will know how many copies of his or her works have been distributed.

The app comes from a Zug-based, Dloop, which spun out of Swisscom’s accelerator, Kickbox.

From the Greater Zurich Area News:

Digital art is displayed on screens in places such as hotels, restaurants and offices. Changing sequences or animations create a unique ambience. However, a lack of copy protection systems and distribution platforms means that these works are often used illegally.

The startup dloop intends to change this situation with its NOOW app. The blockchain solution guarantees the ownership rights for buyers and payment for artists.

The service will be available on Swisscom TV, a set top box service in Switzerland, and include 100 words by thirty artists. Stefanie Marlene Wenger will curate the first batch.

Buyers get a certificate of authenticity and can see the art on their screen. They also know how many copies exist, allowing them to understand the rarity of their piece. It’s obviously a work in progress but as it stands, it’s a fun way to share the idea of cryptocollectables with a non-crypto audience.

“Swisscom TV is one of the first providers in the world to offer art on the TV screen. We are delighted to have Swisscom on board for this courageous project,” said Rieder. “NOOW is making digital art into a collector’s object and creating a value for it.”

Lightning App for Sending Bitcoin Tips on Twitter Is Now Easier to Use

A Twitter app for tipping by way of bitcoin’s experimental lightning network is now easier to use thanks to a new update.

Launched earlier this year, took Twitter’s crypto community by storm by making it possible to tip Twitter users with the experimental micropayment layer lightning. The still-nascent network is being built by a series of startups and developers in a bid to create a new level of scaling for the network.

On Thursday night, the Chrome extension app‘s version 1.0 was released with features that aim to make onboarding new users to the app much easier. These elements include a more comprehensive built-in wallet and better messaging system.

The lightning network is still rather experimental, and even risky to use. At the time of its release, drew support because the app is fairly easy to set up and use as long as a user has a Twitter account.

But even if it’s easier than many other lightning apps, it still left something to be desired, prompting the app’s developer, Sergio Abril, to work on a series of new updates that were bundled into version 1.0.

Notably, users no longer need to set up a third party lightning wallet app to send tips. Perhaps one of the most confusing parts of the app in a prior version was, if you didn’t have a lightning wallet already, you needed to create one to send a tip. But now, that’s not necessary so long as you have a balance on

The caveat here though is that is a custodial app, meaning that the app itself has control of the funds sitting on the website, rather than the user themselves. is even giving out a little bit of bitcoin to people who join – enough that they can send a couple of tips, that is.

In addition, users can now use “on-chain” bitcoin instead of just “off-chain” lightning funds to fill up their tipping jar, and can send messages along with their tips.

Twitter image via Shutterstock

Institutional Investment Is Bullish for Crypto But We Want Retail Traders

Many people predicted that 2019 would be the year of institutional investors entering the cryptocurrency space. Well, after a slow start, the flood gates appear to be opening. Consensus was abuzz with announcements from major household names like Microsoft, eBay, and Whole Foods. Bakkt may finally be launching as early as July. And (apart from another delayed Bitcoin ETF decision) even U.S. regulators appear to be thawing. But while institutional support is bullish for the ecosystem in general, at Digitex, we’re firmly focused on retail traders.

A Tidal Wave of Institutional Investment in Blockchain

Talk to anyone about what crypto needs to stay relevant, consolidate its place, and become a real contending force, and they’ll say it’s mass adoption. Then, they’ll probably point to the various stumbling blocks that remain before we reach that point.

The user experience still remains clunky and slow. Opening an account even on the friendliest of platforms is a hassle for many people. Security of funds is another major issue, and the concept of being your own bank is still terrifying to many. Then there’s the lack of regulation, education, and scalability required to take crypto to the mainstream.

We all know about how much room for growth there is in this space. And that’s exactly why crypto will benefit from greater institutional investment and support. Bakkt’s launch when it actually comes will be a turning point for the industry. At last, a tidal wave of institutional money actually entering the crypto market in the form of physically settled Bitcoin futures contracts.

Microsoft building on the Bitcoin blockchain is also potentially massive. If anyone has the power to bring blockchain technology to millions of corporate clients and eventually end users its the world’s largest software company.

And now Facebook is making up for lost ground announcing the launch of its digital currency network Libra and cryptocurrency GlobalCoin by the end of quarter one 2020, in a handful of select countries. That might just be the killer app that propels crypto to the masses.

In whatever shape or form, all these contributors to the space will help build out the existing infrastructure. They’ll help push for sensible regulation, greater security, a better user experience, and bolster awareness and trust in cryptocurrencies worldwide.

Why Digitex Doesn’t Want Institutional Traders in Our Exchange

There’s no doubt about it, institutional investment is good for the space and will benefit every player in it, including Digitex. However, when it comes to institutional traders, we’re happy for them to stay on platforms like Bakkt and CME.

Why? Because as soon as institutional players enter the market they have the power to move it. We’ve mentioned time and again that Digitex is anti-whale investors. We don’t want institutional investors who can make the DGTX price move with one large buy or sell order at the expense of the entire community. That’s why our Digitex Treasury token sale is capped out at 1 million DGTX per buyer.

That’s also why we’ve designed our exchange to have automated market makers to guarantee that we have tight bid-ask spreads and high liquidity. They’re bots that are designed to break-even–unlike institutional market makers who expect preferential treatment.

Every other major futures exchange provides incentives to traditional market making services provided by institutions. They’re either given reduced trading fees, faster trade execution, quicker access to key information, or even the ability to back out of trades within milliseconds of a bid being hit!

All this preferential treatment generates an unfair advantage over other traders. It pretty much guarantees their profitability at the expense of other market participants. It really doesn’t matter if the bid-ask spreads look tighter and liquidity higher since traders in this type of ecosystem are geared up for failure. They have a mechanical edge against them.

At Digitex, we’re working on providing a level playing field for all traders and entirely equal opportunities to make money. We’ll enable retail traders from crypto futures trading and traditional markets to trade commission-free and entirely fairly.

More Liquidity in the Pool Creates More Successful Traders

Because we are a commission-free exchange, we’re not constantly siphoning funds out of the liquidty pool in the form of commissions to pay for market makers or other operational costs of running an exchange.

There’s currently no exchange out there whose interests are as aligned with their traders. Any exchange using the commission-fee model, giving preferential treatment to whale holders and institutional traders, is actively against the interests of the rest of its traders.

As our CEO Adam Todd explains:

“Because we’re not constantly siphoning money out of the liquidity pool in the form of commissions and other hidden charges. That money stays within the exchange ecosystem where instead it is won by the successful traders.”

This also means that in our exchange, we’ll create a much higher percentage of winners than could ever be the case in fee-charging exchanges. So, while we welcome institutional investment and see its obvious benefits for the crypto community, we don’t want institutions in our exchange.