1. Inside Ethereum’s Plan To Reduce Energy Consumption by 99%
Ethereum intends to move to proof-of-stake in the future. Making a move to POS will supposedly cut the energy consumed by a hundredfold, or around 99%. There have been repeated claims that cryptocurrency uses too much energy and is therefore inefficient and environmentally unfriendly. Some reports find that mining cryptocurrency uses more energy than gold mining, some the opposite. Some researchers find that mining is overall bad for the environment.
Ethereum started out with the goal of becoming a world computer, with the blockchain being the first to introduce smart contracts, and along with it a thriving developer community. The price of Ether peaked around $1400 earlier in 2018 and was recently trading well below $200.
Similar to Bitcoin, Ethereum uses Proof-Of-Work as a consensus mechanism in order to secure the blockchain. However, Ethereum founder Vitalik Buterin stressed the importance of the energy expended in order to secure the Ethereum blockchain. Even if one wouldn’t care for the ecological issues posed by PoW based blockchains, there are real people who are deprived of basic needs such as electricity.
This is largely due to the fact that in PoW based blockchains, miners race to cryptographically secure transactions. This calls for miners to equip themselves with an edge in terms of computational capacity, which results in burning millions of dollars worth of electricity and mining-related costs.
According to Vitalik, Proof-Of-Work is based on the concept of large quantities of electricity and mining hardware purely based on the premise that it generates rewards in the form of mined cryptocurrencies. This means that the more mining power is directly proportional to revenue.
Proof of work necessarily operates on a logic of massive power incentivized into existence by massive rewards
Proof-Of-Stake applies a completely contrasting philosophy towards securing the network
Proof of stake breaks this symmetry by relying not on rewards for security, but rather penalties.
Enter Proof Of Stake
With Proof-Of-Work, miners race to process the same set of transactions. However, Proof-Of-Stake randomly picks validators to process and secure transactions.
In a Proof-Of-Stake System, validators are the equivalent of miners. Secondly, the primary concern within a POS system is to ensure that the validators are honest at all times. This is tackled by requiring validators to put up a stake denominated in the ether as collateral.
The “one-sentence philosophy” of proof of stake is thus not “security comes from burning energy”, but rather “security comes from putting up economic value-at-loss”
The greater a validator’s stake, the greater the chances at being picked to validate transactions. More importantly, validators caught cheating have their stake to lose. This asymmetric difference between the potential rewards vs. the risks of cheating force a validator to remain honest at all times.
One of the most interesting things with respect to PoS is the fact that given validators are not expending as much energy(compared to PoW) to secure the network, the reward may be significantly lower. According to the Casper Github wiki:
Because of the lack of high electricity consumption, there is not as much need to issue as many new coins in order to motivate participants to keep participating in the network.
2. Trader: Bitcoin May See Long-Lasting Stability Throughout ‘Boring’ 2019
Over the past 24 hours, the cryptocurrency market has seen its valuation drop from $135 billion to $130 billion, as the Bitcoin price dropped below the $3,800 mark.
On January 2, the dominant cryptocurrency eyed a breakout above the $4,000 resistance level, but it struggled to increase further from $3,912, retracing to $3,780.
Boring Year For Bitcoin in 2019
Historically, Bitcoin has tended to take 62 weeks on average to recover from a major correction or a bear market, and all five corrections the asset experienced in the past nine years were in the 85 to 90 percent range in terms of loss from an all-time high.
Bitcoin achieved an all-time high at $19,665 on December 16 and since then, the price of the asset has continued to experience a steep decline against the U.S. dollar. In December 2018, Bitcoin fell to $3,210, recording an 83 percent drop from its all-time high.
The historical performance of Bitcoin does not provide clarity on the future performance of the cryptocurrency. However, it can be used as a reference to forecast the time frame of the asset’s recovery.
Willy Woo, a cryptocurrency analyst and the creator of Woobull.com, stated in November that the fundamental indicators of Bitcoin show a potential rebound of the asset in the second quarter of 2019.
“Putting together the blockchain view, I suspect the timing for a bottom may be around Q2 2019. After that we start the true accumulation band, only after that, do we start a long grind upwards,” Woo said at the time when the price of Bitcoin was $7,000.
Considering that Bitcoin needed just over 15 months in the past four corrections to recover, if the asset recovers by the second quarter of this year, it would be similar to the recovery of previous corrections.
According to a cryptocurrency trader known as “The Crypto Dog,” the Bitcoin price may show stability and a low level of volatility throughout this year, presenting a boring year for traders.
The trader said:
BTC has mostly bottomed (might even have put the final low in) but we’re not going to see a significant rally or new highs for a while so that’s not much to get excited about. Cheers to a boring 2019.
Has Bitcoin Bottomed?
Has the crypto market finally found a bottom?
Most analysts are in agreement that Bitcoin is close to achieving its bottom. Some predict that $3,210 may have been the lowest point for the asset but some traders have argued that there currently exists no solid indicators to prove that the asset conclusively established a proper bottom.
It is challenging to declare the bottom of the asset because of its wild volatility in a low price range. While crypto assets in the likes of Ethereum and Ripple (XRP) have made large gains over the past month, with Ethereum recovering by 80 percent, the market is still showing some weaknesses.
As seen in the $5 billion declines of cryptocurrencies on the day, until the market goes through a several-month-long consolidation period, investors would have to expect high volatility.
Featured Image from Shutterstock. Price Charts from TradingView.
3. The First Bitcoin Block Was Mined 10 Years Ago Today
Bitcoin’s Genesis block, which was mined on January 3, 2009, at 18:15:05 UTC, is now 10 years old.
The Bitcoin Network Turns 10
The marking of the 10th anniversary of Bitcoin’s block 0 is, however, not to be confused with the Bitcoin whitepaper’s 10th birthday which was commemorated last year on October 31 in remembrance of the day the whitepaper titled “Bitcoin: A Peer-to-Peer Electronic Cash System” was released.
As CCN reported earlier, Seychelles-based bitcoin exchange, BitMEX, has marked the day by placing an ad on the front page of the British daily The Times with the message “Thanks Satoshi. We owe you one. Happy 10th Birthday, Bitcoin.”
BitMEX marks 10 years since Bitcoin’s Block 0 was mined by placing an ad in The Times | Source: Twitter
BitMEX’s purchase of ad space in The Times is not random, as on the day that the genesis block was mined, Bitcoin’s creator, Satoshi Nakamoto, embedded a headline that had graced the paper on that day reading: “Chancellor on brink of the second bailout for banks.”
This was at the height of the global financial crisis when major financial institutions, especially in the United States and Europe, were being bailed out. The headline was in reference to the plans by the then-Chancellor of the Exchequer in the United Kingdom, Alistair Darling, to bail out British banks for the second time.
Notably, the global financial crisis is understood to have inspired Nakamoto to develop an alternative currency which would not be debased by governments and which would not require the trust to be placed in a centralized institution. This was made clear in a forum post he published on February 11, 2009:
The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust. Banks must be trusted to hold our money and transfer it electronically, but they lend it out in waves of credit bubbles with barely a fraction in reserve.
History Repeating Itself?
Incidentally, just as there was gloomy economic news this day ten years ago in The Times, the same seems to have repeated itself on the day BitMEX’s ad has graced the paper’s front page. The headline story, for instance, calls attention to student debt, which has for some time now raised concerns that just like the sub-prime mortgages triggered the financial crisis of 2008/2009, educational loans could also lead the world into another financial crisis.
Additionally, The Times also featured a story suggesting that the world could be heading into an economic growth slowdown after iPhone maker Apple revised its guidance for the first quarter downwards due to weakening sales in China.
Featured Image from Shutterstock
4. Cryptocurrency Creditors Making a Killing Despite Bear Market
Cryptocurrency creditors have been able to find profits from selling to two types of borrowers: die-hard crypto believers— who expect the market to rebound strongly and institutional investors—who need to get digital assets for short selling.
The downturn in the crypto market that saw cryptocurrencies lose more than half of their values have continued into the new year. Since the crash started in November, the number of blockchain companies restructuring their operations has increased as companies devise new methods to survive the bear market.
In the last three months, we have witnessed a litany of blockchain companies forced to shut down operations and in some cases, layoff team members to stay afloat. In spite of this mild depression, crypto lending has continued to thrive regardless, according to a Bloomberg report.
Seeing the potential of the crypto industry to grow, the developers saw an avenue to make even more money by providing flexible structures, affordable interest rates and high levels of fund security.
Crypto lending went mainstream in 2017. Lenders offered a way for bitcoin enthusiasts to borrow money using their digital assets as collateral. However, while it was widely believed that the niche’s growth would slow down with the prevalence of the slump in crypto prices, lenders have been able to pivot and adjust to the market conditions.
The result? Continued expansion and profits, even while the rest of the crypto industry struggles.
For instance, BlockFi, a lending firm that got an initial $2.5 million investment from Mike Novogratz’ Galaxy Digital, has reported a 10-fold increase in customers and revenues since June 2018. BlockFi started by developing a USD-based crypto loaning fund that enabled holders of Ether and Bitcoin to borrow money while using their digital assets as collateral. Seeing the potential of the crypto industry to grow, the developers saw an avenue to make even more money by providing flexible structures, affordable interest rates and high levels of fund security.
The bear market might have reduced the value of most of these assets, but lenders (especially the first class of lenders discussed above) have continued to flood the BlockFi service. As a testament to investor belief in its business model, BlockFi has raised more rounds from investors such as Akuna Capital and Morgan Creek Digital. The company has also expanded its services to 42 states across the U.S.
In the same manner, SALT, another crypto lending firm, has recorded massive growth in its operations. The company, which was formed in June 2017, claims to have a customer base of over 70,000 borrowers, while also issuing well over $50 million since it launched its services. A year after its inception, the company got approval to expand its services to 20 additional location, bringing its total haul to 35 states in the country. According to CEO Bill Sinclair, the company is looking at expanding its operations to all 50 states by the end of 2019.
Another lending firm, Nexo, partnered with TrueUSD recently to give competitive rates to TUSD holders.
Featured image from Shutterstock.
5. Bitcoin Cash: Single Mining Pool Controls 50% of Hashrate
Bitcoin Cash mining centralization has reached a level where just one pool is controlling half of its hashrate, according to Coin Dance.
The crypto statistics service found that BTC.TOP mining pool, a China-based private entity, took over as high as 50.2% of the entire Bitcoin Cash network at some point today. It contributed the hashrate of 679 Peta-Hash per second against other major competing pools including BTC.com (257 PH/s), ViaBTC (215 PH/s), AntPool (125 PH/s), and Bitcoin.com (187 PH/s).
Bitcoin Cash and Centralization
The notable increase could have taken place due to variance but, at the same time, it threatens the Bitcoin Cash network with a potential 51% attack scenario. The Roger Ver-led blockchain project has been criticized before for failing a “stress test,” conducted at the behest of an anonymous developer(s) known as Bitpico. Evidence showed that 98% of all the Bitcoin Cash nodes were sitting on the same server rack which exposed the coin to seizures and security threats.
In early 2018, Alex Simons, the identity division chief at Microsoft, found that increasing block size such as those done by the Bitcoin Cash team threatened decentralization more than second-layer scalability solutions like Lightning Network.
“While some blockchain communities have increased on-chain transaction capacity (e.g. block size increases), this approach generally degrades the decentralized state of the network and cannot reach the millions of transactions per second the system would generate at world-scale,” he had said.
What’s Next for Bitcoin Cash
The central aspect of any decentralized blockchain project is its ability to guard the system against central control. In a worst-case scenario, malicious mining entities could combine their hashrate output to form a stable coalition. It could make them prevent transactions from getting confirmed; it could allow them even to reverse the confirmed transactions or spend one valid token twice by creating a new chain or by altering old blocks.
Bitcoin Gold, for instance, suffered a 51% attack on its network in 2018 where attackers double-spent BTG tokens for several days. They eventually stole $18 million worth of Bitcoin Gold tokens, according to the BTG/USD exchange rate at the time of the attack. In August 2016, two Ethereum-based crypto projects, Krypton and Shift, also suffered 51% attack on their networks.
In some cases, mining pools which unintentionally crossed the 50% hashrate barrier voluntarily reduced their computing power with the purpose of redistributing it to other mining pools. GHash.io, for instance, had exceeded 50% of the bitcoin’s computing power in July 2014 but reduced it back to 40% after facing a community backlash.
What BTC.TOP could do is what GHash.io had done in its time: let go of some of the computing power to reinject trust in the Bitcoin Cash network. If it doesn’t scale back, the digital currency could suffer hugely as investors’ sentiment wears off.
Featured image from Shutterstock.