We are now more than half way through the year. Blockchain Week in NYC was a dud in my opinion and reflected the excess hype that was still in the space. Price action has been volatile, but there have been other important developments as well. If you are new to this space, it is not easy to get a handle of all the issues in the crypto ecosystem. So let's start with price and then discuss 3 other key developments so far in 2018 regarding 1) Exchanges, 2) BUIDL & Main Nets, and 3) Regulations. You will also find below many links/resources to catch up on all that's been happening.
Bitcoin and other cryptos are still in price discovery mode. "Experts" predicted bitcoin's price to be anywhere from $1000 to $100,000 within 2018.
This is just a small sample of all the price predictions from a range of sources - from popular financial outlets to crypto-focused ones. The bearish sentiment is just as strong within the crypto community, as it is from outsiders.
Some pundits split hairs and say this is technically NOT a bear market, but simply a retracement within a long-term bull run. The long-term view might still be true, but in the short-term, we are definitely in a bear market in 2018. Bitcoin price and the crypto market cap in general has seen a 70+% drawdown from the top.
Price and the market's perception of crypto's value is important, but there are other interesting developments of more substance. Let's take a look at what's been going on with 1) Exchanges, 2) BUIDL and Main Nets, and 3) Regulations
To me, exchanges are one of the most important part of the ecosystem right now. The likes of Coinbase and Binance have provided access for a larger pool of investors and traders into this space. Here are some interesting trends in 2018:
i. OTC markets growing. Crypto OTC markets are starting to mature. They use to be just a mish mash of trading desks communicating through messengers like Skype or Wechat. Kraken was one of the larger exchanges to dip into the dark pool by building its own OTC desk. In 2018, other big exchanges are getting into the game.
ii. Decentralized Exchanges (DEXes) are being touted as the next stage in evolution of crypto exchanges .In 2018, its not just about on-boarding, but about custody. In a DEX, custody belongs to the trader and the transaction goes wallet to wallet. One potential benefit is security because there is no single custodian of funds.
Coinbase for example acquired Paradex, which "enables investors to trade ERC-20 tokens directly from their digital token wallets, by acting as a relay for transfers. Hardware wallets - notably the Ledger wallet - are supported as well."(Coindesk.com)
Binance has also been promoting its transition towards decentralizing: Binance Decentralized Exchange Coming Soon – And Just About Every Coin Is Welcome
Whether DEXes will be boon is unclear because from a technical view, DEXes requires more computing power to run, and thus end up being slower with higher fees. In 2018, this will still be the case.
iii. Trans-Fee Mining is a thing now. First came the Chinese exchange FCoin in May. Then Hong-Kong based Bit-Z and Singapore-based CoinBene launched in June. This new breed of exchanges pay you back your fees in the form of its native token. Basically transactions will mine new tokens, which compensates the trader for transaction fees. This is brilliant right?
Binance CEO Changpeng Zhao disagrees: "You pay transaction fees to the platform with BTC and ETH. Then the platform pays '100%' back to you with its token. Isn't it just buying platform token with BTC and ETH? How is this different from an ICO?" (Coindesk.com)
There will be other issues these exchanges will have to deal with, like bot-trading solely for the purpose of mining the exchange token. It is too early to judge, by the end of the year, we will have some data to assess whether this model is successful, or whether unintended consequences will take center stage in the narrative of these new exchanges.
2) BUIDL and Mainnets:
2017 was the year of ICOs. ICOs are still hot in 2018, but maybe the market is not as hyped about finding the next unicorn in 2018, unless of course, you are China, where this scene is still hot.
So let me deviate for a second to point out the fact that the Chinese are much more on top of the crypto market than Americans (as we can see in the video below)
As you can see from the video, even in this "bear" market, there is still a lot of innovative energy. The catchword in 2017 was HODL, but there has been a shift to BUIDL. It's never going to be as catchy as HODL, but it reflects the fact that when price is not percolating, the attention of the crypto space lands on actual developments. Here are some key developments so far this year:
For Bitcoin and Ethereum, their respective "scaling layers" have been in development for over a year now. Bitcoin already has multi-sig, and has been testing the lightning network. In 2018, the lightning network moved from the test net to the main net, where it has been in further beta testing.
Below are some lightning network stats as of July 2, 2018:
As we can see, even though we saw 12.34% growth in nodes in the past 30 days, the network capacity is still quite low at around 30 BTCs.
Listen to this Let's Talk Bitcoin podcast, where Elizabeth Stark discusses the things that go into the implementation of the lightning network: Let's Talk Bitcoin! #357 Real Lightning with Elizabeth Stark
There is also the GRIN implementation of the mimble wimble protocol. This is an attempt to add a privacy layer to the bitcoin protocol. Below is a good article on GRIN on Medium, and the GRIN github repository.
Ethereum's scaling solutions have been in development for much shorter time than bitcoin's. There are 3 solutions that will be implemented: Casper (proof of stake), as well as Plasma and Sharding, which will improve transaction speed and add privacy features. Vitalik claimed that "SHARDING AND PLASMA COULD SCALE ETHEREUM BY 10,000X" (bitcoinist.com)
The roll-out will be tricky. Remember that when bitcoin rolled out multi-sig in 2017, we ended up getting a fork that created the Bitcoin "Core" with multi-sig, and Bitcoin Cash with different blocksize and blocktime. Well, there was a lot of debate on whether Ethereum should transition completely to POS. So far, it looks like the community is going to take the hybrid approach.
The Casper upgrade (transition to POS/POW hybrid) was delayed until June. This means, unlike the original plan to cap the ETH supply at the time of transition, there will still be some inflation due to the continuance of POW mining.
iii. EOS and other key main net launches so far in 2018:
EOS, ranked 5th in market cap among cryptos (as of July 5, 2018), had wide coverage of its main net launch, because it is the largest project to go live this year, with a market cap of nearly $8 billion. Block.One, the foundation behind EOS, designed the launch to be community-run. So as expected it was a slow, contentious launch as it triggered some changes to the EOS constitution.
You can watch Ivan on Tech hash out the details in the youtube video below. Essentially, a significant part of the EOS community felt the need to change rules in the consensus mechanism involving the 21 elected block producers.
EOS might still see some growing pains after taking off the training wheels on the Ethereum network. Now, it is completely community-run on its own network and the entire crypto community will take note as it tries to rival Ethereum as the next smart contract platform.
3) National Regulations
US: There hasn't been any monumental changes in the way US regulators are approaching the crypto space. It looks like ICOs will be under SEC's jurisdiction as chairman Jay Clayton continues to view most cryptos as securities.
He did say that cryptocurrencies like Bitcoin and Litecoin are NOT securities. However, the SEC has not yet provided a clear guide to how ICOs are to legally structured in the US. Instead, he welcomes those who want to create ICOs to work directly with the SEC.
Japan: Japan has been one of the most welcoming countries to crypto. It is a legal currency in the country. However, it is also moving towards categorizing crypto NOT as currency, but as financial products. Thus, it will be regulating exchanges differently.
While this might sound like a restriction, it actually provides a foundation for the creation of ETFs and other crypto funds.
Malta: Malta has also been a very welcoming nation for crypto. This is the reason Binance is setting up its HQ there. Perhaps these smaller countries are better fit for legislative innovation and therefore will become case-studies for larger governments to learn from before they enact changes.
Venezuela: Venezuela launched the Petro, which it claims to be a state-backed and oil-backed cryptocurrency that will lift the nation out of its depleted balance sheet. This is not likely going to happen.
Using the Petro now is essentially like paying for today's projects with the future's oil supply. It is not a sustainable solution and might eventually crumble like a house of cards.
Listen to this podcast to get a better understand about this farce:
What to Expect?
As we move into the second half of the year, we should continue to expect price volatility. We should brace ourselves for bitcoin to retrace back to 5K and maybe even lower.
There is a trend in mining that I did not cover here, but hope to cover in detail separately. ASICs is taking over for all POW cryptos. Monero and ZCash were suppose to be ASIC-resistance, but the Chinese miner - and largest in the world - Bitmain has come out with ASIC hardware for both and many others.
I think we will see a lot of contentious debate around the centralization-decentralization paradigm especially in regards to mining and consensus models. I think price action will continue to be in a discovery mode with almost 100% speculation that is NOT related to underlying value propositions. Meanwhile, the innovations in this space are a encouraging sign that while crypto is experiencing some growing pains, it is surely here to stay in one form or another.