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Stablecoins

Stablecoins are normally pegged to fiat money like the U.S dollar. Due to their low volatility, they are frequently used by investors to purchase crypto assets like Bitcoin through virtual transactions that can be settled rapidly.

Tether is the leading stablecoin used by crypto exchanges across the globe, with an estimate market share of 75%. Other popular stablecoins include USD Coin (run and managed by a consortium that include Circle and Coinbase), Paxos Standard (has been approved by the New York State Department of Financial Services.), Gemini Dollar (being offered by the exchange run by the Winklevoss twins).

A class of programmatically issued collateralized digital currencies are emerging, most are either backed by fiat reserves ($USD) or by other digital assets such as ether ($ETH).

Fiat-Collateralized

As most stablecoins are currently pegged to the US dollar, the large majority of projects have decided to use US legal tender as the source of collateral for the issuance of their tokens.

Fiat-collateralized stablecoins retain their 1:1 peg by utilizing trusted third parties to hold an equivalent amount of legal tender in reserves.

New stablecoins are minted when a party deposits USD into the issuer’s reserve. Similarly, when a redemption request is made, the issuer will send the buyer USD and burn the redeemed stablecoin.

The most commonly used fiat-collateralized stablecoins include but are not limited to:

  • Tether ($USDT) – A fiat-pegged stablecoin built on top of Bitcoin via the Omni Layer Protocol. Each Tether issued into circulation is said to be backed by a one-to-one ratio with the equivalent amount of fiat currency held in a custodial account by Hong Kong-based Tether Limited.
  • USD Coin ($USDC) – Fully collateralized US dollar ERC20 tokens founded by CENTRE,  a joint venture founded by Circle and Coinbase. USDC is an open-source project which operates within US money transmission laws. The project uses established banks and auditors while leveraging Ethereum-based smart contracts.
  • Paxos Standard ($PAX) – Backed one-to-one by USD deposits and available through Paxos. PAX is available one-to-one in exchange for USD and redeemable one-to-one for USD. Upon redemption, PAX tokens are immediately removed from the supply; PAX are only in existence when the corresponding dollars are in custody.
  • TrueUSD ($TUSD) – A USD-backed ERC20 stablecoin that is fully collateralized, legally protected, and transparently verified by third-party attestations. TrueUSD uses multiple escrow accounts to reduce counterparty risk and to provide token-holders with legal protections against misappropriation. TrueUSD is the first asset token built on the TrustToken platform.
  • Gemini Dollar ($GUSD) – Created at the time of withdrawal from the Gemini platform. Gemini customers may exchange US dollars for Gemini dollars at a 1:1 exchange rate by initiating a withdrawal of Gemini dollars from their Gemini account to any Ethereum address they specify.

Crypto-Collateralized

Rather than being backed by legal tender, crypto-collateralized stablecoins hold currencies such as ether ($ETH) in escrow for the issuance of new tokens. In doing so, users have the ability to mint and burn tokens without needing to utilize or trust a centralized third party.

While the trustless nature of these stablecoins is quite appealing to the decentralized notion of many cryptocurrency projects, it does come with a drawback. Where fiat-backed stablecoins only need to hold 1:1 reserves in legal tender, this subset of stablecoins often require over-collateralization to account for price volatility. Most commonly, this ratio is set at 150%, meaning that in order to issue $100 worth of $DAI, you will need to post at least $150 worth of $ETH as collateral.

The most commonly known crypto-collateralized stablecoins include but are not limited to:

  • Maker Dai ($DAI) – Dai is a crypto-collateralized ERC20 token backed by an excess amount of digital asset collateral (most commonly $ETH) through Maker Vaults. Dai utilizes smart contracts and a governance token, $MKR, to monitor price stability.
  • Synthetix ($sUSD) – Previously known as Havven, Synethetix is a crypto-collateralized network enabling the creation of on-chain synthetic assets on the Ethereum blockchain. These assets are over-collateralized to provide sufficient liquidity for users to redeem collateral at face value. Beyond $sUSD, Synthetix plans to offer stablecoins for other legal tenders such as the euro, yen, and the Korean won.
  • Reserve tokens ($RSV) – Hybrid-collateralized token backed by both fiat and digital assets. Initially built on Ethereum, Reserve tokens aim to be interoperable across any blockchain in the future. Similar to Maker Dai, Reserve tokens utilize a governance token, $RSR, to monitor price stability in a decentralized fashion.

Non-Collateralized (Algorithmic) Stablecoins / Seigniorage

Seigniorage-style coins utilize algorithms to control the stablecoin’s money supply, similar to a central bank’s approach to printing and destroying currency. Seigniorage-based stablecoins are a less popular form of stablecoin.

Significant features of seigniorage-style stablecoins are:

  • Adjustments are made on-chain,
  • No collateral is needed to mint coins,
  • Value is controlled by supply and demand through algorithms, stabilizing price.

A team of anonymous developers is making what might be called a fork called Basis Cash based on the stablecoin Basis (originally  known as Basecoin) that had $133 million in funding before U.S. securities regulators stepped in and the team behind it returned everything in late 2018.

  • Basis Cash ($BAC) – Like most stablecoins, Basis Cash (BAC) is pegged to the U.S. dollar, so one BAC should be equal to the crypto equivalent of one USD. Basis Cash’s price will be managed by two other crypto assets: Basis Bonds and Basis Shares. Originally 50,000 BAC was distributed over a five-day period to folks that deposit any of these five stablecoins into its smart contract: DAI, yCRV, USDT, SUSD and USDC. If BAC should drop below a dollar, the system will issue Basis Bonds. Those Basis Bonds can be bought for one BAC. They can also be redeemed for one new BAC when the price is above a dollar. For example, if BAC were to drop to $0.97, a user could buy a bunch of BAC at that discounted price and redeem them for the bonds (which burn the BAC). That reduces the supply and should bring it back in line with the peg. Then, when BAC goes over $1.00, new BAC gets issued. The system first lets bondholders redeem them (so if someone bought bonds at $0.97 they should get at least a 3% profit) and the rest of the fresh BAC goes to holders of Basis Cash Shares. Though to get the new BAC (the seignorage), BAS holders have to stake their shares in the Boardroom, another smart contract. From the documents it seems to rely on Uniswap price data.
  • Carbon ($CRBN) – Some projects like Carbon modify the seigniorage shares model. In Carbon, users can elect to freeze portions of their funds to manage contraction and growth cycles. Some projects issue bonds, but simply pay out new stablecoins to all users, pro rata, when all bonds have been paid and supply must increase still. Each approach to the seigniorage shares model has its own set of challenges. Carbon is conceptually similar in design to Basis. However, Carbon uses Hedera Hashgraph which could potentially provide it with significantly higher throughput and speed.

Conclusion

For the average user, stablecoins provide a reliable medium of exchange for now.

Fiat-backed stablecoins can never be censorship resistant, permissionless and trustless. The risk for further regulatory / government interference related to fiat-collateralized stablecoins should not be under estimated. Gemini USD and Paxos Standard (PAX) Stablecoins, are the most highly regulated of all the fiat- backed / asset-backed tokens. They are subject to the terms contained In the source code which include the right of forfeiture or seizure if required by law enforcement.

Over time, as the open financial system grows, DEXs gain market share and dApps gain adoption, crypto-native stablecoins will win on the merits of censorship-resistance and value sharing, with Maker’s Dai currently leading the way.

The biggest benefits dollar-pegged algorithmic systems like Basis have over crypto-backed systems is their capital-efficiency and increased profit potential. Capital-efficiency should make it easier for the system to respond to sudden growth in demand, while the profits can be shared with many stakeholders who should be motivated to support and drive the ecosystem forward.

Most of the key innovations will come from crypto-backed and algorithmic backed / seigniorage based stablecoins

Geir Solem

guides

Trading TOKEN – Market Order vs. Limit Order

Market orders allow you to trade a token for the going price, while limit orders allow you to name your price.

When you’re ready to buy or sell a token on a decentralized exchange also called DEX, you have two main ways to determine the price you’ll trade at: the market order and the limit order. With market orders, you trade the token for whatever the going price is. With limit orders, you can name a price, and if the token hits it the trade is usually executed.

That’s the most fundamental difference between a market order and a limit order, but each type can be more appropriate for a given trading situation. Here’s what you need to consider.

Market orders get you in or out fast

The biggest advantage of a market order is that your broker can execute it quickly, because you’re taking the best price available at that moment. If you’re buying a token, a market order will execute at whatever price the seller is asking. If you’re selling, a market order will execute at whatever the buyer is bidding.

The biggest drawback of the market order is that you can’t specify the price of the trade. Many times that doesn’t matter, however. For large enterprises that are highly liquid (trade in high volumes), the difference between buyers’ bid price and sellers’ ask price — called the bid-ask spread — is cents on the dollar. Unless you’re buying huge numbers of tokens, that difference doesn’t matter.

However, if the price moves quickly, you could end up trading at a vastly different price from when you entered the order. That’s rare but possible. A more likely scenario: You enter a market order after the market closes and then the enterprice announces news that affects its token price. If you don’t cancel the order before the exchange opens the next day, you may end up trading at a much different price than you had intended.

Another potential drawback occurs with illiquid tokens, those trading on low volume. When you enter a market order, you might spike or sink the token price because there are not enough buyers or sellers at that moment to cover the order. You’ll end up with a much different price than just moments before as your order influences the market.

Go with a market order when: 

  • You want a quick execution at any cost
  • You’re trading a highly liquid token with a narrow bid-ask spread (typically cents)
  • You’re trading only a few tokens (for example, less than 1000)

Limit orders might get you the price you want

The biggest advantage of the limit order is that you get to name your price, and if the token reaches that price, the order will probably be filled. Typically, you can set limit orders to execute up to three months after you enter them, meaning you don’t have to watch compulsively to get your price.

On some (illiquid) tokens, the bid-ask spread can easily cover trading costs. For example, if the spread is 10 cents and you’re buying 100 shares, a limit order at the lower bid price would save you $10, enough to cover the commission.

The biggest drawback: You’re not guaranteed to trade the token. If the token never reaches the limit price, the trade won’t execute. Even if the token hits your limit, there may not be enough demand or supply to fill the order. That’s more likely for small, illiquid tokens.

Another drawback, especially with an order that can execute up to three months in the future, is that the token may move dramatically. Your trade may be filled at a price much different from what you could have otherwise gotten.

Imagine Ethereum announces a potentially huge novelty and its Ether (ETH) token spikes from $200 to $270, while you have a limit order to sell at $202 using a USD equivalent stablecoin like Tether as settlement. You might end up selling for $202 when you could have received more. The reverse can happen with a limit order to buy when bad news emerges. You may end up buying at a much higher price than you otherwise could have or now think the tokens’s worth.

Go with a limit order when:

  • You want to specify your price, sometimes much different from where the token is
  • You want to trade a token that’s illiquid or the bid-ask spread is large (usually more than 5 cents)
  • You’re trading a high number of tokens (for example, more than 500)

Save money on commissions

Limit orders can help you save money on commissions, especially on illiquid tokens that bounce around the bid and ask prices. But you’ll also save money by taking a buy-and-hold mentality to your investments. Because you avoid selling out of the market, you’ll incur fewer commissions and you’ll avoid capital-gains taxes, which could easily dwarf trading costs. Plus, you’ll want to stay invested to let the compound growth work its magic.

Geir Solem

guides

How to use CryptorDex (DEX)

Tools you need to use the DEX

You need ether (ETH) and wrapped Ether (wETH) to buy & sell on the DEX exchange, as ETH and wETH is how you pay for transactions. Learn more about wrapped tokens here. You also need an ERC20 compatible wallet in order to use the DEX. We recommend Metamask.

Log into your wallet and connect it to the DEX by clicking on your wallet address that should occur in the menu at top right corner of the DEX. (Note: You need to be logged into your wallet in order to use the DEX.) You will then get a new menu, at the top of the menu click on “my wallet”. You should now see the listed tokens and your holdings of each of them.

If you already have ETH and wETH in your wallet, you are already set to begin. If not, this guide will explain how to buy both ETH and wETH under.

You are now ready to do transactions like buying and selling tokens on the DEX.

How to Unlock tokens in your wallet

You will need to unlock the token you want to sell or use as payment in a swap, so the system can take it from your wallet. On the 3rd row in the menu from the right you have “Locked?”. Click on the “lock” symbol beside the token you want to unlock. Your wallet will ask for a confirmation of the unlock, and you will need to confirm in order to complete the unlock. The lock symbol should now disappear from that token.

How to buy / sell ETH and wETH

If you have ETH, you can then buy wETH on the DEX by converting ETH to wETH by using the mall menu that now should be present up in the top left corner of the DEX. 1 wETH has the same value as 1 ETH. fill out how many ETH you want to convert to wETH, it will then give you the total transaction value including commission. Complete the transaction by clicking on “convert’. If you have wETH you can also convert to ETH using this menu.

How to send tokens

On the right side you have buttons for sending tokens or buying tokens. If you want to send some of your BIB tokens to another wallet, click the “send” button beside your holding of BIB tokens, and you get up a small form where you fill out the address of the wallet you want to send your BIB token, as well as the number of BIB tokens you want to send. The necessary ETH gas will be taken from your wallet when you initiate the transaction.

How to buy tokens

If you want to buy tokens click on the “buy” button beside the tokens listed that you want to buy, you will then get up a small form where you fill out the order details like the number of tokens you want to buy. To complete the transaction click on the “buy” button at the bottom of the form.

How to swap tokens and tokens that are listed on the exchange?

On the menu up in the top right corner click on “swap”. You get a new screen where you can swap ETH with any of the tokens. Select the token you want to swap buy using the menu up in the top left corner. A small form in the middle of the screen shows the price used and how many tokens you get for the swap. Fill out how many tokens you want to send, and the number of tokens you receive will occur on the form. Click “swap” to complete the transaction.

Decentralized Finance (DEFI)

On the menu up in the top right corner click on “DEFI” and you get up a new screen with options to borrow tokens and put up tokens as collateral, giving you the possibility to leverage your trade. Unless you are a skilled trader, we do not recommend that you use leverage in your trading. 

Price chart of your token

Click on “CryptorDEX” up in the top right corner and you get a screen of the listed tokens. Click on the token you want displayed with a price chart. You will then get a price chart covering the last 3 months of trading.

Over the price chart you have a menu with the following items Day, Candles, Compare, and Indicators (Technical Indicators).

Technical Indicators

Click on “Indicators” if you want to select the technical indicators to use in order to analyze the price chart like “accumulation / distribution”, “average true range”, etc. in alphabetic order. Search for the indicator you are looking for like RSI (Relative Strength Indicator”. You can learn more about technical indicators used for analyzing price structure on our investment website Elliott Wave Technician here.

Buy or Sell tokens

On the right side at the bottom, you should now see a form where you can initiate a “buy” or “sell” transaction for the token you look at in the price chart. The current order book / transactions occurs in the top half of the form.

In the form for ‘buy’ and “sell” orders, fill out the number of tokens you want to buy or sell, and the price in ETH. The calculated price should now occur at the bottom line. Remember to choose if you order is at “market” or on “limit”.

Market orders allow you to trade a token for the going price, while limit orders allow you to name your price. However, remember that newly listed tokens has yet to establish a market and the liquidity is low, then prices can swing widely. In this case use “limit” in order to control the price you buy or sell for. Click on the buy / sell button to complete the transaction. Remember if you are buying using ETH to pay, ETH need to be unlocked in your wallet before you initiate the transaction. If you are selling a token it needs to be unlocked before you can initiate a sell transactions.

Geir Solem

guides

Overview of wrapped tokens

Description of wrapped token

A wrapped token is an asset hosted on the Ethereum blockchain with a price that is the same as another underlying asset, even if it’s not on the same blockchain or on a blockchain at all.

A wrapped token is an ERC-20 compatible token with a value identical to another asset that it represents, either through a smart contract or by being backed one-to-one with the underlying asset. 

Wrapped Bitcoin, for instance, is a token worth the same as one BTC at any given moment, as a smart contract algorithm reproduces its price in real time and regulates the underlying fund with supply and demand information gleaned from user transactions. In exchange for their money, wrapped token users get an equivalent amount of value “wrapped up” in an asset that’s more easily mobilized by decentralized applications (DApps).

Wrapped Ether, is a token worth the same as one ETH.

Types of wrapped tokens ?

Because Ethereum is the biggest DeFi ecosystem, wrapped tokens are often those hosted on other blockchains but are also stablecoins that are pegged to the dollar.

Many of the first wrapped assets were, in fact, fiat-backed stablecoins, such as tokens with prices pegged to the dollar — Tether, Coinbase’s USDC or TrueUSD. There are also euro, yen, yuan and countless other fiat stablecoins that are mostly based on the Ethereum blockchain. 

The Wrapped Zcash token (coming), a privacy coin, will provide Ethereum DApp users with the coin’s anonymity advantages, plus a reliable way to invest in Zcoin, thereby boosting its market.

Wrapped Zcash is a way for Zcash to be used within financial applications built on Ethereum — it opens a bridge from one ecosystem to the other. This two-way street benefits both Zcash and Ethereum users, as Zcash users are able to transact and invest within the many decentralized financial applications built on ETH.

This integration also brings an effect on the supply and demand for Zcash, which could prove a significant tailwind. For Ethereum users, the privacy benefits of Zcash enabled by its z-addresses and t-addresses provide new ways for decentralized finance (DeFi) applications to limit the publication of identifying information held in transaction data while still passing auditory and compliance standards.

These are backed accordingly via the reserves, with coins fed in according to the demand of online crypto exchanges and larger institutional investors who want to quickly exchange fiat money into crypto and manage their money within a given platform. This makes it as easy to deposit dollars into DeFi applications and blockchain wallets as it does to have a reliable counter currency providing traders relief from crypto asset volatility.

Blockchain interoperability

Other cryptocurrencies are beginning to launch wrapped versions of their tokens on Ethereum in larger numbers, with interoperability (The ability to share information across different blockchain networks, without restrictions) a vital consideration for solutions that want to be taken seriously.

Currently, one blockchain has no knowledge of information that might exist in a different blockchain. For instance, the Bitcoin (BTC) blockchain exists fully independently of the Ethereum (ETH) blockchain — in the sense that it has no knowledge of any information recorded there — and vice versa. Blockchain-based projects are isolated from each other, despite existing within the same industry and working with the same technology.

The crypto industry involves “a series of unconnected systems operating alongside, but walled from each other”. Blockchain interoperability is the ability to exchange data between different blockchains seamlessly, as if there were no boundaries.

Geir Solem

cybersecurity, guides

ERC20 Token Design Mistakes vs ERC223 Token

The old ERC20 token standard have bugs and disadvantages resulting in thousands of ERC20 tokens to be lost annually. These design mistakes has been addressed in the new ERC223 token which is fully compatible with ERC20 wallets and exchanges. 

What is ERC?

ERC means Ethereum Request for Comments. It practically allows for smart contracts to be built on the Ethereum platform based on certain standards thus creating a common interface for all Ethereum tokens. Ethereum developers recommend that any Ethereum developer who wants to create a new token should follow this set of standards to ensure that their tokens are easily recognizable on both the Ethereum network and other third-party service providers such as crypto-wallets. These ERC20 tokens can be received, and sent just like any other cryptocurrency like Bitcoin, Litecoin and Ethereum.

ERC20 bugs

The ERC20 standard is programmed software and accordingly contains some bugs and logic errors. Two different ways to handle tokens were taken into account in the creation. On the one hand, tokens can be sent to another address. A smart contract is paid by using the “approve” and “transferFrom” functions.  Thereafter, the contract may be approved to allow the tokens to be withdrawn. Afterwards the token is filled or lifted by means of “transferFrom”.

When transferring tokens for a contract with “transferFrom” this transaction is basically valid. However, the contract does not recognize it by the user, resulting in the tokens not being loaded into your account. Normally, an emergency token function is stored in the exchange contract (decentralized). If this is not the case, the tokens can not be returned and are lost forever.

ERC20 will continue to be used

Most token based projects have used the original ERC20 token standard as it is with faults. This include even  well known projects.

At present many developers are still unaware of the design mistakes and bugs in the old ERC20 tokens standard so they continue to use it in new developments.

Can the ERC223 standard solve the problems?

ERC223 is a new token standard that seeks to address the design mistakes / errors of ERC20. These problems are:

  • ERC20 provides no programmatic interface to handle incoming transactions in smart contracts.
  • ERC20 handling smart contracts typically require you to trust them with all your funds in order to use them. This is unlike native ether, which has excellent support for trustless transactions.
  • Nothing prevents the user to send ERC20 tokens to a smart contract, such as an exchange. However, due to the inability to handle incoming transactions these sent tokens will not alter the state of the smart contract (such as balance on the exchange), and it will be impossible to retrieve them from the smart contract. Effectively, these tokens get burned resulting in multi millions of USD losses in ERC20 tokens. Because of the deflationary nature of cryptocurrencies this losses will continue to accumulate.

The main improvement of ERC223

  • On top of offering the same level convenience as ERC20 tokens, it also offers its holders protection against losing tokens by introducing a revert option or altogether blocking the transfer of tokens to random contracts. Tokens can no longer be sent to non supporting contracts with the ERC223 standard.
  • ERC223 allows to deposit tokens into a contract with a single transaction (function) which reduces the use of resources. This again reduce the cost and running time of the transaction to about half compared to that of the old ERC20 standard.

ERC223 is created to be compatible with existing blockchain infrastructure, such as wallets like Mist, Parity, MyEtherWallet and MetaMask, and blockchain explorers such as Etherscan and Ethplorer.

Geir Solem

cryptorevolution, disruptor, guides

Decentralized Exchanges

Created in 2008 by the pseudonymous computer programmer Satoshi Nakamoto, bitcoin is digital money that’s tracked via a public ledger and controlled by no central bank, corporation, or individual.

Image courtesy of Wiki Commons

It’s a peer-to-peer currency based on the blockchain running on the internet that allows its users to transfer value with no central authority or third party involved. Since a network of distributed and mostly anonymous miners are all in charge of processing the transactions, we avoid problems like censorship and fraud.

The automated issuance mechanism of bitcoin through mining also seeks to remove the control of money printing from privately owned banks that lend money to the public at an interest, creating the debt based economy. The primary goal of Bitcoin, to return the control of money to its owners, is in a way lost with third party services.

With cryptocurrencies comes the need for exchanges, and centralized exchanges are easy to use, easy to access, and they provide advanced trading functionalities like margin trading and others.

However, they also represent a security risk for your funds. While some exchanges are better guarded than others, hacks are not an uncommon. There are a number or risks related to centralized exchanges like incompetence, bankruptcy, etc.

We need to exchange our currencies. There are certain items and services that we cannot buy with Bitcoin and in order to acquire Bitcoin or cryptocurrencies, most people have to exchange it for a national currency. Furthermore, some cryptocurrencies like Ether or Bitshares have special features or tools that are not present in Bitcoin. So how can we exchange our coins without entrusting them to a third party service? The answer lies with decentralized exchanges.

Image courtesy Wiki Commons

Decentralized Exchanges

A decentralized exchange is an exchange market that does not rely on a third party service to hold the customer’s funds. Instead, trades occur directly between users (peer to peer) through an automated process. This system can be achieved by creating proxy tokens (crypto assets that represent a certain fiat or crypto currency) or assets (that can represent shares in a company for example) or through a decentralized multi-signature escrow system, among other solutions.

This is an alternative to the current centralized model in which users deposit their funds and the exchange issues an IOU that can be freely traded on the platform. When a user asks to withdraw his funds, these are converted back into the cryptocurrency they represent and sent to their owner.

Advantages

The most important benefit to using a decentralized exchange over a centralized one is their “trustless” nature. You are not required to trust the security or honesty of the exchange since the funds are held by you in your personal wallet and not by a third party.

Another advantage to the decentralized model is the privacy it provides. Users are not required to disclose their personal details to anyone, except if the exchange method involves bank transfers, in which case your identity is revealed only to the person that is selling or buying from you.

In addition, the hosting of decentralized exchanges is distributed through nodes meaning that there is no risk of server downtime. To summarize,

  • No parenting by governments, banks and other institutions
  • Secure, no 3rd party involved
  • Set the unbanked free
  • Open, Transparent
  • Global, fast, efficient, 24/7
  • No identity theft
  • A platform for innovation

Disadvantages

Some decentralized exchanges require users to be online in order for an order to be listed and for the trade to take place, requiring users to perform certain actions like signaling that a payment was received.

Trading features like margin trading, lending and stop loss are currently not available in the decentralized model as they only allow the basic exchange of currency for a predetermined value.

Overview of decentralized exchanges

While there is still a way to go in order to build fully functional and convenient decentralized exchanges, there are several projects that have brought us the basic functions and an alternative way to trade currencies while keeping your funds safe from hacks, inside thefts and faulty business models.

Bitsquare is a decentralized open-source exchange that allows users to buy and sell Bitcoin for cryptocurrencies and national currencies without the need to entrust funds to third-party or middleman, meaning that the transactions occur directly between the buyer and seller. Bitsquare relies on a decentralized multi-signature escrow system to ensure that all trades are carried out honestly.

CounterParty is a meta-coin smart contract layer that embeds data into regular Bitcoin transactions. It allows anyone to issue assets or tokens inside of the Bitcoin blockchain. When trading assets for other assets, the Counterparty protocol acts as a decentralized escrow service that holds the funds until the orders are matched. When trading an asset for Bitcoin, the asset is held in escrow and the other user must make a manual bitcoin payment using the Counterparty wallet.

Waveplatform Waves Asset Exchange is allowing users to trade assets (including asset-to-asset exchange), fiat tokens, and cryptocurrencies.

Bitshares is a crypto platform with its own native currency, Bitshares. Using the Bitshares platform, users can trade BTS, Market Pegged Assets (a crypto asset pegged to another currency or commodity that always has 100% or more of its value backed by the BitShares core currency, to which they can be converted at any time) and User Issued Assets (assets that can be issued by anyone to represent shares, commodities, currencies and so on). Openledger is the Web-based version of Bitshares, running on the same underlying blockchain.

Nxt is a crypto platform (one of the first crypto 2.0 projects) that allows users to issue and trade assets. These assets, however, can only be exchanged for the coin NXT and not for other cryptocurrencies.

Komodo EasyDEX exchange will allow users to trade cryptocurrencies directly without resorting to proxy tokens, while the PAX (Pegged Asset Exchange), both being developed by the SuperNET and Komodo teams, allows users to exchange national currency assets with the privacy that zero-knowledge proofs provide.

Stashcrypto is built on the Open-Transactions financial cryptography platform, an extremely fast and low cost off-blockchain system based on signed receipts. When combined with Bitcoin, OT solves hard problems in crypto finance. Receipts in OT cannot be forged, and a user’s balance cannot be changed without his signature. OT is also able to prove all balances, as well as which instruments are still valid, without storing any history except for the last signed receipt.

Cryptor Trust is working on the CryptorDex, an open decentralized distributed platform for trading securities. Cryptor Trust plan to list their own investment entities on the CryptorDex exchange.

Conclusion

Decentralized exchanges provide global, frictionless value-transfers. Without decentralized exchanges, there will be intermediaries having control over the transfer of value.

Geir Solem

cryptorevolution, disruptor, guides, reports & analysis

The Big Diversion to Make You Forget Bitcoin

Most people likely agree that Mahatma Gandhi knew a thing or two about perseverance.  Gandhi offered this to say which can certainly relate to fighting for and standing up for a monumental change you believe in:

“First they ignore you, then they laugh at you, then they fight you, then you win.”

It is plausible that Bitcoin will have a much greater impact on humanity over time than that of the internet, but it is difficult to argue that the internet ever faced as many attacks as Bitcoin has and continues to face.  The attacks started out rather superficial and well, obvious, but this analysis surmises that they eventually became indirect, obtuse, and something one might see in an episode of the excellent TV series “Blacklist”.  Entrenched, status quo hugging opponents of anything that can increase economic and political freedom moved past the uneducated and flimsy attacks on Bitcoin to intentionally developing alternatives that are in part designed to slow or impede the adoption of Bitcoin.

The people and organizations behind private and permissioned blockchains, central bank backed cryptocurrencies, and AltCoins may very well truly stand behind their offerings and this analysis is open to that reality.  However, one can’t help but explore that one of the primary motives of these people and organizations is to simply present something, anything really, that will create distractions, fear of Bitcoin, and doubts about Bitcoin with the intent of slowing or even blocking the adoption of Bitcoin.

blythemastersblockchain

Private Blockchains to the Rescue

Let’s start with private and permissioned blockchains.  Those supporting private and permissioned blockchains are essentially running with these marketing points:

  • Bitcoin has tremendous features but you don’t need Bitcoin
  • Come join us with our private and permissioned blockchain because it’s better and did we say it is “private” and “proprietary”?
  • We can get other firms on board to help us secure our private and permissioned blockchain so don’t worry about scaling or security or any of that stuff
  • You don’t need Bitcoin but you really need the underlying technology supporting Bitcoin so just join our consortium and we will tell you what to do and how to do it

It’s not that crazy to think that the world’s major financial institutions would throw a few hundred million dollars of “VC money” into ventures that are promoting private and permissioned blockchains for the financial markets.  These companies rely on the Federal Reserve’s printing press to bail them out in times of extreme stress, lend them money at 0% or close to 0%, and use the Federal Reserve Note to fleece the global economy and its participants.  What’s a few hundred million if it can buy you a few years while people get lost and bogged down in the private, permissioned blockchains versus Bitcoin debate?   That’s pocket change to the Primary Dealers of the Federal Reserve System.

Speaking of private, permissioned blockchains – can anyone actually point one out that is operational and functional?   It remains to be seen if these initiatives ever move beyond vaporware.  More importantly, it perhaps merits close watching to see if the entities involved can trust each other and provide more security than that is provided by the open and public Bitcoin blockchain.   We are already seeing an escalating patent war where various financial firms are attempting to claim intellectual property on various “blockchain” features and technologies.

Let’s also not forget about immutability – one of the most crucial aspects of Bitcoin.  Some may complain about the work and investments required for proof of work and immutability but the whole point is to record and store transactions permanently.  There are numerous cases of banks and financial institutions pleading guilty to various crimes and forms of fraud.  One can imagine these banks controlling a private blockchain utilizing all of their creativity and deception so that they can go back and alter records to cover up more fraud and criminal activity.  Immutability is a tremendous asset and not a liability.  However, it is a major threat if your business model relies on fraud.

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Behold FedCoin!!!

At least a few Central Banks joined the financial news cycle by touting an upcoming government cryptocurrency or revealing plans to develop their own cryptocurrency.  “FedCoin” is on its way if we are to believe everything the media tells us.  For any Central Bank or government to deploy their own cryptocurrency a potential question to ask perhaps is the following:  Who is going to mine the FedCoin and who is going to support the mining infrastructure for the FedCoin?  Some may respond with “not to worry the Fed will simply print Federal Reserve Notes and pay for the mining itself”.  That argument begs the question of how on Earth this highly centralized FedCoin could possibly protect itself from constant hacks and theft if it literally had all of the mining centralized under the Fed’s watch.  The other major issue is if FedCoin strived for decentralization who would deploy their own hard earned money and assets to build and support mining infrastructure for a cryptocurrency owned and controlled by the Fed or another Central Bank.  That is akin to paying a retainer fee to your bank and credit card to show your support for their fleecing of your assets via fees, usury, and inflation.  It won’t happen.

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“FedCoin” or any government backed cryptocurrency will also have to answer the bell on inflation versus deflation and how and who controls the supply of the coins.  Will a “FedCoin” cap the number of coins that will ever exist?  If they stated a cap will anyone believe them?  How will Central Banks and governments even function if they have to adhere to hard restrictions on the creation of new monetary units?

Crypto Pump and Dump

AltCoins are another very interesting part of the saga surrounding cryptocurrencies in general.  The premise that dozens if not hundreds or thousands of AltCoins could in theory exist to support various use cases or niches seems fairly reasonable but there is also the nagging issue of scale and the network effects.  If very few people use an AltCoin and its trading lacks liquidity it will be very hard for that AltCoin to ultimately succeed.  The reality is more likely that most of the current AltCoins will fail due to lack of use and liquidity and others will come and go over time as well.  That said, there are AltCoins that appear to have genuine intent and motivations supporting them.

The bigger challenge with AltCoins is when there is some type of a profit motivation behind the development of the AltCoin by a closed group of early participants.  Anyone or any group is free to develop what they choose and the market is also free to judge the offering.  Some of the AltCoins making it onto the scene really smell like “pump and dump” schemes and almost like the IPO fever of the internet bubble era when hundreds of companies scrambled to become a Dot Com so they could rush through an IPO.  If it looks too good to be true . . . . . . . .

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Any AltCoin that is cryptic about how much pre-mining took place or how much supply of the coins currently exists or will exist or how that is controlled deserves extra vigilant scrutiny.  What are they hiding?  One of Bitcoin’s best features is that despite the existence of large holders of Bitcoin present for years now, there is not a legion of private corporations that claim to “own” Bitcoin or own or control the “Bitcoin blockchain”.  Bitcoin is an open architecture.  There are AltCoins that essentially launch an IPO after a select group of insiders controls a chunk of the coins while simultaneously not being entirely clear about the protocols or potential supply of coins.

The same argument regarding immutability and proof of work noted above regarding private and permissioned blockchains applies to Altcoins as well.  We already have examples of Altcoins making major structural changes after certain initiatives failed to gain traction or perform as desired or expected.  This makes it extremely difficult to gain trust and dedication to investment in a surrounding ecosystem and infrastructure.  Comparing the development around the Bitcoin protocol to that of Altcoins demonstrates how ecosystems are much more likely to grow and mature around an open and trustworthy architecture.

Crazy Theory or The Obvious Truth?

Although some may scoff at this analysis as a “conspiracy theory” the author finds it quite plausible and even highly likely.  The heavily entrenched incumbents and associated “governments” controlling the existing financial system continue to show the world they will ruthlessly commit fraud and engage in criminal behavior while also using currencies as weapons that can impoverish victim nations.  It seems quite feasible that if they discovered stopping Bitcoin in its tracks was not possible, they would simply try other strategies.

History outlines quite clearly that humans will create any scheme or business plan possible to exploit transformational changes as we are seeing right now with Altcoins.  Entrenched incumbents will deploy any strategy possible to delay or impede the adoption of revolutionary technological changes, and this is what we are seeing with private and permissioned blockchains.  “Extend and Pretend” and “Delay and Pray” are two of the strategies powerful incumbents frequently deploy when challenged.  Take that into consideration when evaluating if the world has even seen before something as powerful as Bitcoin that threatens so many incumbents while also offering so much opportunity for others to exploit either ethically or deceitfully.  Also consider that the people and organizations referred to in this analysis could also seek to impede Bitcoin’s progress so that they themselves could accumulate more Bitcoin as a hedge.  If you can’t beat Bitcoin or stop it perhaps your only option is to delay its eventual domination.

David Young