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ZombieChain Comes Alive: Can Ethereum Sidechains Save the Dapps?

That decision will cost you half a cent. Are you sure that’s the right move?

If you’re a gamer, decentralized applications (dapps) hold an enticing promise: you might finally be able to truly own virtual in-game items and accumulate them without worrying about a company changing the rules and taking them away. But as with other big blockchain ideas, that’s not quite a reality today.

One reason is the economics of how this would work are uncertain. To commit an action to the ethereum blockchain, users need to expend gas, a unit of value that’s priced in ether, the network’s cryptocurrency, and that fluctuates based on how much other people are using the network at any given time.

For Loom Network, a startup specializing in applying blockchain technology to gaming dapps, that just won’t do. Constant microtransactions harm user experience, even if network traffic isn’t pushing up gas prices at a given moment, as happened during the recent CryptoKitties boom.

Loom co-founder James Duffy told CoinDesk in a recent interview, “there’s just a mental transaction cost.”

He continued:

“Even if you’re spending a fraction of a penny every time you move your character, people still have to make decisions about whether it’s worthwhile to make a move [when] they know every single thing they’re doing is costing them.”

With that problem in mind, Duffy announced Loom’s newest offering – a ready-made “shared sidechain” that dapp developers can use in exchange for a monthly fee – this week. ZombieChain, as it’s called, is expected to launch in a month or two.

So far, not developers have signed up to build dapps on it, but the Loom team is excited about how it advances their ideas and vision.

“ZombieChain’s model more closely parallels traditional web hosting,” Duffy wrote in the announcement, “where developers pay a flat monthly fee based on the resources consumed by their application, upgrading their web server and paying more as their app grows in popularity over time.”

The idea of a shared sidechain, Duffy believes, has the potential to help gaming dapps achieve scale while making life easier for users and developers alike.

The alternatives, as the stand today, are: one, to house games on ethereum’s main chain, with its poor user experience; or two, to build a dedicated sidechain for each game.

“Not everyone wants to do that,” Duffy told CoinDesk – hence ZombieChain has come to life.

Sidestepping scalability

Broadly, sidechains have a long pedigree in cryptocurrencies, going back to Adam Back and other developers’ 2014 proposal for bitcoin “pegged sidechains.”

The idea is to complete transactions on smaller, nimbler chains that are later reconciled to the main blockchain – ethereum, in Loom’s case. Sidechain users sacrifice some of the security and decentralization of the main chain, since they depend on a smaller number of “validators” – analogous to miners – to register their transactions.

But they gain in terms of throughput, that is, the time it takes to complete transactions.

Loom Network took this idea and introduced the concept of “application-specific sidechains” or “dappchains.” Using Loom’s software development kit (SDK), developers can build a dedicated sidechain to house their dapp, with ethereum serving as a secure, decentralized base layer.

Loom has already built DelegateCall, a kind of decentralized Stack Exchange, on a dappchain. In addition, two games are under development in-house, according to Duffy: one he compares to Magic: the Gathering, the other to Pokemon. The user experience, he says, is like any mobile game: “fully immersive, graphics – you actually wouldn’t really know that it’s running on a dappchain.”

As the company’s head of business development Michael Cullinan told CoinDesk in March, the Loom developer platform aims “to make it simple to make highly-scalable apps on the blockchain.”

However, the company’s since found that not every project wants its own dappchain – at least not in the beginning. Developers would have to set up validators to act as the nexus between the sidechain and the ethereum blockchain. Then, in order to achieve decentralization, they would have to incentivize users – if they had users – to act as validators themselves.

Many early-stage projects were looking for a simpler solution, so Loom came up with the idea of a shared dappchain. Duffy told CoinDesk: “this way, when someone launches a new application they don’t know how popular it’s going to be, so they can start on kind of a shared hosting plan.”

If the game does take off, the developers can “fork it and run it on its own dappchain.” Eventually, Duffy says, Loom may roll out multiple shared chains for different use cases: a games chain and a social media chain, for example.

The monthly fees the developers pay will depend on the cost of committing their users’ data to ethereum. How developers collect money from users is up to them: donations are one possibility, as are monthly charges through a smart contract.

Reckoning with the trilemma

Designing decentralized networks involves tradeoffs, and sidechains are no exception. Ethereum founder Vitalik Buterin described these tradeoffs as a trilemma, in which three different priorities are in tension: decentralization, security, and scalability.

Duffy recognizes this fact, and argues that ZombieChain is a kind of “middle ground.”

First, it’s important to note that Loom Network’s focus is on applications that need high levels of throughput: decentralized games and social networks. And Duffy argues that these use cases “don’t really need that high level of decentralization that you need on ethereum.”

On a decentralized social network, he says:

“Someone’s not going to pay millions of dollars to attack the network to censor someone else’s tweet.”

For that reason, Loom Network has opted to base its sidechains – including ZombieChain – on delegated proof of stake (DPoS), a consensus algorithm in which the network elects “validators” to serve in place of miners. How many validators is up to the developer: the higher the number, the slower – but more decentralized – the network.

As for the shared ZombieChain, Duffy says the number of validators hasn’t been decided. He notes, though, that “in the beginning, it’s fully centralized because we’re running all the validators. Then in the future we want to open it up to let other people run validators.”

To be clear, that’s the case with any new sidechain: until a user base develops, and some of those users are willing to serve as validators, the chain is centralized in the hands of its creator.

Down the line, therefore, ZombieChain can actually help to ensure that new projects to some degree decentralized and scalable form the outset. Rather than setting up on the slow and costly ethereum mainnet, or spinning up a new centralized dappchain, they can join ZombieChain.

Even projects that are already set up on mainnet, says Duffy, “could very easily port that same application to ZombieChain,” adding:

“It would reduce the cost significantly and also let them have a more fluid user experience.”

As for the third leg of the trilemma, security, Duffy does not appear to be worried. “It’s really important to have that decentralized base layer of ethereum,” he says, “because then you can use it like the high court.

The mechanism for doing that, he continues, is plasma cash, which allows users to store valuable data – ether, for example – on the main blockchain, while still being able to trade it on the sidechain.

“If the sidechain did something dishonest,” he says, “you could contest it on mainnet and you would be able to withdraw your assets back to mainnet.”

For now, ZombieChain is just an idea, but it has the potential to allow new projects to deploy their dapps without sacrificing too much in terms of either scalability or decentralization.

Game image via Medium

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Blockchain Must Adapt to Build Trust in the Internet of Things

Mic Bowman is a principal engineer at Intel and a member of CoinDesk’s advisory board. Camille Morhardt is the director of IoT strategy at Intel. 

The following article originally appeared in Consensus Magazine, distributed exclusively to attendees of CoinDesk’s Consensus 2018 event.


The edge is messy.

And the edge, where billions of interacting devices that will make up the Internet of Things will reside, is where IoT data is generated and acted upon.

There are often no secure physical perimeters where the raw sensing of the physical world takes place: on rooftops and space stations, inside mines and aircraft engines, on container ships and solar panels. Even edge counterparts that aggregate, filter, normalize, and increasingly interpret data, or send it to a cloud for additional analysis, are often mobile, have intermittent connectivity, and are subject to shock, vibration, or extreme temperatures.

As Things increase their connectivity and intelligence, so too will our demand for them to autonomously form networks, exchange information, and coordinate action on our behalves.

When we order an article of clothing online, for example, we indirectly call on, among others, a fashion designer, raw goods suppliers, logistics companies, customs, a distributor, an importer, a buyer, an inventory management system, a customer management system, a bank, a web management system for product placement and pricing, a retailer, and a last-mile delivery driver.

Were each of these participants able to gain near real-time insight into our purchase and its progression from factory to front door, they might be able to collaborate to optimize multiple independent systems near real-time to get me the product as fast and in as good condition as possible – especially if there are unforeseen setbacks en route – a flat tire! – while preparing for their next order.

Yet the formation of these networks is rife with problems. In the best case, information collected, shared, and acted upon is inconsistent in quality and availability. In the worst case, it provides a completely new attack vector for malicious participants. When Things plan and act on our behalves, we want assurance that the data they utilize to make decisions is trustworthy.

Ensuring that information is trustworthy is hard enough when a central authority orchestrates device configuration, data collection and cleaning, and data dissemination.  However, distributed networks can’t rely upon a central authority.

Traditional means to assert and verify participant identity and integrity fail, because participating Things are made by different manufacturers, run different operating systems, communicate with different protocols, and act on behalf of different owners who have different motives. The answer may well lie in the emerging technology that has become known as “blockchain.”

Blockchain – or distributed ledger technologies in general – offers hope for expressing and establishing shared trust in information created and exchanged by Things: the immutable log of events that is the blockchain provides a means to establish authoritatively the provenance of information; to record and enforce policies for accessing the information; and to act on the information autonomously through “smart contracts.”

However, while there is tremendous promise, blockchain technologies must evolve substantially to meet IoT’s unique demands. The unique characteristics of IoT applications impose both technical and economic requirements that lead us to conclude that IoT applications must be situated within an economic, legal and regulatory context that extends beyond the blockchain. In particular, whereas traditional blockchain applications ascribe all authority to the blockchain, we believe IoT applications must achieve a balance of authority.

Technology requirements

Establishing trust in the information shared among Things creates new requirements for blockchain technologies. Generally, blockchain technologies operate as an authority for well-defined, deterministic systems. However, information created by Things sits outside the blockchain and is notoriously ambiguous and non-deterministic. Providing information assurance for qualitative data imposes new requirements on the technology.

Requirement 1: Identity and reputation of participants is central to trust and must be exposed.

Public blockchains like Bitcoin typically provide a history of the transactions on assets while anonymizing (or at least attempting to hide) the identity of those performing the transactions. For IoT applications, however, information becomes more complex than simple ownership of an asset.  In particular, most information generated at the edge is strongly qualitative; and once information becomes qualitative, its provenance – including the identity and reputation of the source – is critical. For example, a blockchain can accurately record the transfer of access rights to a piece of information that asserts that a container was shipped across town. However, a blockchain is unable to assert the authenticity of the GPS readings captured in the shipping record.

Purists from the cryptocurrency world will argue that a “permissioned blockchain” is an oxymoron; however, some form of identity verification is required for participants who join the network so they can trust the information the Thing contributes to the collective. This demand has led to the formation of private, permissioned, closed, and enterprise blockchains – all variants on the theme of restricted participation in the distributed network. There is another possibility that Things may be identified or otherwise certified to contribute information to an otherwise public blockchain – some sort of hybrid model that attempts to validate input but not restrict inputters. Other possible solutions involve the use of anonymous credentials and verifiable claims.

Requirement 2: Controlled access to information is critical.

Typically, blockchain transactions are transparent. The introduction of smart contracts that codify and execute detailed agreements between participants complicates this notion. Businesses don’t like to share confidential data with competitors. Smart contracts will be powerful tools in IoT, particularly in supply chains that include third party logistics companies. It’s quite common for disputes to arise at handoff points where there is transfer of custody of an asset. The ability to prove that the temperature of the container remained within contract parameters should allow immediate trigger of payment. Or conversely, proof that the good spoiled under party eight’s custody in a twelve-party supply chain that all participants can view will quickly resolve finger pointing.  And this proof must be constructed without revealing additional confidential information. For example, if an organization is collecting bids on produce that was in that container, the organization may not want all bidders to see every bid or to know the final sale price. In general, the information shared through transactions is subject to a potentially complex set of access policies.

Requirement 3: Efficiency matters.

Another core principle of blockchain is redundant compute and storage: every participant processes all transactions and maintains the ledger, creating an ever-growing demand for storage across the network. In IoT, where lightweight nodes at the edge frequently have extremely limited storage and compute power (because their primary purpose is to sense raw data as economically as possible), IoT blockchains will likely need to recognize the variety of nodes in the network and their relative capabilities. The blockchain itself may need to orchestrate which clients act as lightweight nodes, and which act as validators. Further, we are likely to see an increasing variety of consensus mechanisms that do not require massive quantities of computing power or specialized hardware, and are thus easier to scale or run on existing deployed equipment.  (Note, also, that while redundancy is often viewed as a feature for blockchain integrity, one that increases the cost to a malicious actor that seeks to break network consensus and introduce fraudulent transactions, it also simultaneously expands confidentiality risks. Ledger replication offers a wide surface area for attackers seeking access to individual nodes’ sensitive data.)

Requirement 4: Connectivity is intermittent; action must be taken when disconnected.

Intermittent connectivity seems paradoxical to the Internet of Things. As Jacob Morgan defined IoT in Forbes in 2014, “Simply put, this is the concept of basically connecting any device with an on and off switch to the Internet (and/or to each other).” The IoT community spent a lot of time espousing pervasive connectivity and a reduction in transmission and storage costs; however we now confidently make tradeoffs between connectivity and battery life, connectivity and transmission cost, connectivity and infrastructure cost. There are many, many edge nodes which by design receive or send data only intermittently and in small quantities. In essence, the same forces that drive autonomous interaction to the edge also require blockchains to accommodate connectivity constraints.

Requirement 5: Actions must be reversible.

To this point, the requirements we’ve discussed have been rather peripheral to the core of blockchain technology, focusing on performance and deployment characteristics; this one, however, represents a fundamental shift in one of the central tenets of the technology. Specifically, blockchain technology is founded on the principle of immutability; once something is committed to the log it never changes. This principle is particularly appropriate for the preservation of a record of unambiguous and deterministic events (such as transactions that represent the transfer of ownership of assets). However, data from the edge is often messy.

Precision and accuracy are limited by the physical capabilities of the Thing. And information generated at the edge is subject to a variety of malicious attacks that are difficult to detect. The messiness of data created (and consumed) by Things leads to a level of ambiguity and non-determinism that conflicts with blockchain technologies. Consider, for example, a smart contract that adjusts the target speed of vehicles on a road based on measured traffic flow. Weather issues that affect the accuracy of the flow sensor might trigger adjustments in the target speed that are unintended. A more troublesome example might occur when automatic payments are triggered when a shipping container arrives at a facility. A faulty RFID reader could report the existence of a container that has not actually arrived triggering an inappropriate transfer of funds.

Often, some form of external recourse can audit and prescribe corrective transactions that address these problems (though this implies the existence of an external authority). However, issues arise where the information itself is problematic. For example, personal information might leak into a transaction; the effect of GDPR and other privacy regulations may require that information be removed from the record. This problem is not unique to IoT applications though we expect it to be more common in them.

Economic Requirements

Beyond the technical requirements are simple economic barriers to blockchain adoption in IoT. Enterprises are familiar with centralized systems and in traditional, linear supply chains, they work well. When there is a strong purchaser at one end of a supply chain, there is every reason for that entity to simply set up a distributed database (that it manages centrally) and require all vendors participating in its supply chain to enter their data into it.

Until we enter the realm of multiple overlapping ecosystems and complex non-linear, dynamic supply chains (think: distributed manufacturing with over a dozen contributors to any given Thing printed, each with unique IP, equipment, and certifications), it is difficult to find an economically compelling use for truly decentralized ledgers.

However, the competitive environment in which these incumbents operate in is rapidly changing, with 3D-printing enabling distributed manufacturing, and barriers to entry around machine learning and other fast-developing technologies lowering. To compete, enterprises may be forced to adopt more open systems. The IoT industry is inevitably expanding into more complex ecosystems. As a result, we expect compelling use cases for blockchain will become more apparent.

Herein lies a conundrum. Single strong purchasers orchestrate ecosystems around a supply chain because they accrue revenue by doing so. Distributed collaboration results in distributed value, so there is little incentive for any single, incumbent entity to set up the infrastructure to distribute orchestration. Blockchains are uniquely suited to micro-transactions, so scale may help solve this problem. The IoT community has seen a few subscription models and nonprofit models. However, until there emerges a clear, repeatable, compelling business model, adoption of blockchains for IoT will be slow.

Over the next couple of years we will likely see an increasing number of pilots and small scale deployments using the technology in sub-optimal usages, e.g. standard supply chains with a dozen or so participants to improve speed of asset tracking or provenance and reduction of disputes through audit – all important advances in IoT. In these early trials, industry and ecosystem leaders will seek to prove cost savings or incremental revenue.

We will then witness the evolution of standards that allow for cross-organizational device identity and configuration, with early methods for partitioning workloads across the variety of IoT devices, and protecting data or its meta-inputs via linked trusted execution engines or retention of encrypted states as data moves across edge, fog, and cloud nodes. Devices will autonomously form communities, exchange information, and present us with options for action based on their interactions.

Finally, we will likely see commensuration of data generated at the edge – not just across autonomous Things or organizations, but across autonomous ecosystems. At this point the blockchain will be more efficient than centralized systems at managing the complexities of non-linear supply chains, managing identity, provenance, shared data sets, and running smart contracts.

While we will be trusting machines to make some decisions and take some actions on our behalves, businesses in IoT will always want to retain the ability to revoke or reverse the actions taken by a smart contract, since humans are notoriously bad at contingency planning or future prediction, and the equipment that will be acting on our behalves will also often be responsible for keeping us safe.

Recommendations

We often talk about a blockchain as a replacement for a trusted third party for interactions within a community; that is, the community ascribes to the blockchain ultimate authority about “truth.” For applications built around a network of Things, however, the blockchain must be situated within a much larger context that incorporates institutional relationships, legal requirements, and regulatory control.

There is a very real danger for those deploying blockchain-based solutions for IoT to believe that the tamper-proof nature of the blockchain provides assurances about the integrity and trustworthiness of information (and about actions driven by that information).

A more realistic view is that the role of the blockchain transitions from a source of “shared truth” about the state of a system to a log of “decisions and actions” that might need to be adjusted in the future.

Network visualization via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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US Department of Justice, CFTC Probe Crypto Market Manipulation: Report

The U.S Department of Justice has reportedly launched a criminal investigation into cryptocurrency traders who may have manipulated the market old-school illicit tactics.

According to a report by Bloomberg on Thursday citing anonymous sources familiar with the probe, the investigation is being conducted together with the Commodity and Futures Trading Commission (CFTC).

One area of the investigation targets so-called spoofing – a technique that has been used in traditional financial markets to affect price movements by making large volumes of fake orders – that possibly influenced trades of bitcoin and ethereum, according to the report.

In addition, DoJ is probing crypto traders who may have cheated the system by sending themselves large volumes of orders to create a mirage of increasing demand in order to tip other investors into making a move.

The news marks the latest effort by U.S. authorities to ensure a fair cryptocurrency market since the CFTC gave the green light to domestic exchanges to list bitcoin-backed futures and derivative products late last year.

Today’s report also comes just weeks after a commissioner from CFTC made comments on the agency’s growing scrutiny over cryptocurrency activities that may have violated the law.

As previously reported by CoinDesk, speaking at a conference in Washington, D.C., CFTC commissioner Brian Quintenz said the agency is particularly focusing on “fraud, market manipulation and disruptive trading involving virtual currency.”

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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Bitcoin Cash Fork Leaves Users Behind, But Does It Matter?

Bitcoin cash now has 32 MB blocks and smart contracts.

The controversial hard fork of bitcoin hard forked again several days ago in an effort to add new functionality to the cryptocurrency protocol and further differentiate it from its predecessor. But in the process – executing at block 530350 – a portion of the bitcoin cash community was left behind.

At the time of writing, between 16 percent and 17 percent of bitcoin cash nodes are running old software and because of the way upgrading by hard fork works (whereby changes are not backwards compatible), those nodes are now running on a completely separate network. As such, if any user running one of those nodes were to make a transaction, the new, larger bitcoin cash network would not recognize it.

Critics of bitcoin cash argue it’s a bad sign that so many nodes haven’t upgraded, since those users are now completely cut off from the rest of the network.

Some have even gone as far as to argue the quietness around the hard fork as a sign that relatively few people care about bitcoin cash. If more people cared, they contend, the changes would see more debate, because people would be worried about the implications, Bitcoin Core contributor Kalle Alm argued on social media.

“You can tell bitcoin cash is not bitcoin by looking at how not everyone is losing their shit all over the place,” he said, adding:

“Imagine if 20 percent of bitcoin nodes failed consensus? Everyone would explode.”

But proponents of the network disagree.

“That’s a rather meaningless statistic. Likely the reason those nodes haven’t upgraded is because they aren’t in use and the owners haven’t bothered yet,” said Chris Pacia, lead developer at OB1’s OpenBazaar.

A popular fork

Pacia pushed back on the idea the calm surrounding the hard fork means anything but that users were happy with the upgrade.

Despite a portion of users not yet upgrading their systems to go along with it, Pacia said, all miners have upgraded. And sure enough, leading up  to the fork, social media comments among bitcoin cash advocates were overwhelmingly in favor of the changes.

“The network update has the full support of the community, with bitcoin cash aiming to compete with the [lightning] network of bitcoin,” said Matthew Newton, an analyst at crypto investment platform eToro, in a statement.

The statement continued:

“Increasing the block size and allowing smart contracts to be built is seen as an important step in its quest to become the dominant cryptocurrency.”

The new features look like they’re working properly so far.

Pacia was one of the first to use OP_CAT, one of the so-called smart contracts added to the protocol through the hard fork.

And other projects got a boost from the new features too. For instance, because of the bigger block size, users can now write longer messages on the bitcoin cash social media site Memo.cash.

“If this was a contentious change and those nodes didn’t upgrade because they legitimately wanted to stick with the world rules than that could be a problem. But I’m pretty sure that isn’t the case here,” Pacia added.

Reckless competition?

That said, the hard fork continues to draw mixed reception from the broader cryptocurrency community.

The hard fork that led to bitcoin cash was a controversial one and even though the two groups have went their separate ways, there is still arguments over the groups use of language and marketing.

Alm told CoinDesk he thinks it’s “insane” that bitcoin cash developers don’t care about the node statistic more and “that goes to show how little [they] care about individual sovereignty.”

“In bitcoin, the nodes are everything. They are the users of the system. To dismiss cutting off a fifth of your users in a hard fork, controversial or not, is reckless, to say the least,” Alm added.

And further, many critics argue the upgrades in the latest bitcoin cash hard fork don’t have good trade-offs for the system as a whole.

For example, increasing the block size too much can decrease the likelihood that anyone can run full nodes in the future, since the storage requirements will be more than most household computers generally allow for. This is a particularly contentious point, since many cryptocurrency enthusiasts believe running a full node is the safest and most decentralized way to use the technology.

Still, bitcoin cash advocates see the effort to continue improving the cryptocurrency as a sign of necessary competition within the space.

“What events like these are also making clear, however, is the underlying sense of competition between the bitcoin cash and bitcoin communities,” Newton said. “Both are fiercely passionate about these assets and confident that one will emerge as the victor.”

He added:

“Ultimately, it remains to be seen how that will play out over the long-term, as both cryptocurrencies continue to develop.”

Fork image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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‘BitLicense Refugees’: ShapeShift, Kraken Talk Escape from New York

If you wanted to hear red-meat rhetoric about New York State’s regulatory approach, a fireside chat Tuesday between two of the cryptocurrency industry’s most outspoken leaders delivered.

For example, the audience at Consensus 2018 in New York City cheered when ShapeShift CEO Erik Voorhees invoked a local icon to make the case that the state’s BitLicense was a case of regulatory overreach.

Here we are two miles from the Statue of Liberty and you cannot sell CryptoKitties in the state without that license. That’s the absurdity of what’s happened here,” he said.

And Jesse Powell, the CEO of Kraken, got some laughs at the expense of former New York Attorney General Eric Schneiderman.

When Scheniderman’s office sent a request for information to Kraken (along with several other exchanges) earlier this year – three years after his company stopped doing business in New York – it felt like “a slap in the face,” Powell said.

But then “it turns out this asshole actually slapped people in the face,” he quipped, referring to the allegations of physical abuse that forced Schneiderman to resign shortly afterward.

Yet between these zingers and applause lines about the BitLicense – which both executives blame for driving their companies out of state – there were subtler points made. The conversation highlighted the challenges facing both the industry and regulators worldwide as governments come to terms with the ramifications of cryptocurrency.

Powell, for example, pointed out the tension between anti-money-laundering regulations and customer privacy protections. In the case of the BitLicense, he said, Kraken would have had to “disclose all the information about our entire global client base to the state of New York.”

That was not only distasteful, Powell said, but “potentially illegal” under the privacy laws of other countries.

“To service New York today, what we’d have to do is create a special purpose entity just to service New York and completely firewall off” all the exchange’s other users to protect their privacy, he said.

Alternative models

Widening the lens, Powell contended that the U.S. “has really failed” by leaving it up to local regulators to figure out how to deal with cryptocurrencies.

“In others parts of the world, it’s an issue that’s being taken seriously by heads of state – presidents, prime ministers. It’s not something that’s relegated to individual regulators at a state level,” he said. “It should be treated as a national economic and national security issue, maybe even an international issue.”

Powell cited Japan’s Virtual Currency Act as an example of “reasonable” regulation. Although the law is “not perfect,” he said, “we’re already seeing an explosion of business in Japan” as a result of the clarity it brought.

Voorhees, however, held up a different U.S. state as an example of how to do things right: Wyoming, which recently passed a package of five blockchain-related laws.

The two most important ones, in his view, were a law that excludes tokens from being automatically categorized as securities, and another that excludes digital asset companies from being automatically classified as money transmitters.

“That’s the model people should be looking at, they’ve done it the best,” Voorhees said.

And despite using the phrase “statist oppression” early in the conversation to describe his feelings about New York when the BitLicense was created, Voorhees later clarified that he thinks regulators generally have good intentions.

But their aims can be met today by means other than imposing bureaucratic, bank-style regulations on businesses that want to be nothing like traditional financial institutions, he argued.

“The crypto industry and regulators can find common ground in realizing that this incredible new technology can achieve many of the noble goals of the regulators such as protecting consumers,” Voorhees said.

Regulatory hopscotch

Ultimately, though, the two executives depicted cryptocurrency as a highly mobile activity that can easily relocate when any jurisdiction starts to appear heavy-handed.

Powell said Kraken’s main office is located in San Francisco only as a convenience because that’s where he lived when he started the company. Crypto businesses can basically pick up and move anywhere in the world they want to be, he said.

And users need not always move to another place, use a VPN to mask their IP address or even break the law to get around restrictions; Powell shared a tip for New York residents who feel deprived because of the way the BitLicense has limited their cryptocurrency trading options.

“If you’re here stuck in New York and you can’t trade how you want to trade, set up a Wyoming LLC and you can trade through that and have your business trade for you,” he said.

Further limiting regulators’ power, Powell said, the rise of decentralized exchanges will give users even more alternatives.

“If they can’t do what they want on Kraken they’re doing to do it on a decentralized exchange,” he said.

And Voorhees said “regulatory hopscotch” by exchanges and other businesses that move from one country to another is only a symptom of a broader phenomenon that won’t easily be resolved.

He concluded:

“Bitcoin basically broke down the borders of how value moves across humanity. There is no way that an invention like that doesn’t run straight into the jaws of regulations. And that conflict is going to be one of the great themes of my lifetime.”

Photo via Wolfie Zhao for CoinDesk. Left to right: CoinDesk research director Nolan Bauerle, Jesse Powell and Erik Voorhees. 

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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SAP to Launch New Blockchain Supply Chain Initiative

Multinational software firm SAP is expanding its work with blockchain into the supply chain space.

Torsten Zube, SAP’s blockchain lead, revealed Monday that the company is looking to apply the tech to agricultural supply chains by way of its Farm to Consumer initiative. Companies like Johnsonville, Naturipe Farms and Maple Leaf are working as additional collaborators on the project.

“The Farm to Consumer project perfectly showcases a common pattern we see in many of our blockchain projects,” Zube wrote in a blog post detailing the initiative. “Cross-company collaboration along complex value chains for which the technology can remove abundant process steps and friction, and establish automated trust.”

SAP will integrate the blockchain into its existing Global Track and Trace technology to act as “an additional layer complementary to core processes that creates one shared view on the data from all involved stakeholders contributing to the supply chain.”

The enhanced technology, Zube contended, allows companies to trace the origins of food products, enter requests and offerings, and authenticate and execute transactions.

SAP also revealed that it has teamed up with Swiss supply chain startup modum.io to further its supply chain ventures. SAP plans to provide further details on the companies’ joint work on pilot projects in June.

Zube is bullish on blockchain and thinks the technology could potentially reconfigure current food industry production models.

“If enterprises can access the complete version of product history,” he explained, “this could result in a shift from a central unilateral supplier-led production to a consumer demand-led supply organized by a consortium of peers.”

He went on to predict:

“Networking along the traditional lines of value chains will be replaced by sharing data governance, resources, processes and practices and lead to joint learning opportunities.”

These undertakings are not SAP’s only blockchain ventures. The company previously launched a “blockchain co-innovation initiative” to explore distributed business processes that utilize peer-to-peer networks. It is also a member of Spain’s Alastria consortium, which focuses on inter-company data sharing, and the Blockchain in Trucking Alliance (BiTA).

Image via Pete Rizzo for CoinDesk

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A Daily Show Comedian Showed Up to Roast an Ethereum Conference

“No one knows what the fuck is going on.”

That’s according to Ronny Chieng, senior correspondent on the satirical news program The Daily Show, who took the stage at Ethereal Summit on Saturday with ConsenSys founder and CEO Joseph Lubin and Kavita Gupta, founding managing partner at ConsenSys Ventures.

Chieng, who spoke with Lubin in December on the show, again criticized the big promises and hype of the industry. He argued that many people in the industry use complicated jargon and words that were “invented” two or fewer years ago to camouflage the fact that they don’t actually know how the technology will change the world.

The Daily Show correspondent said at one point:

“You could talk about anything with these people. You could talk about the NBA playoffs and they’d be like, ‘Yeah we’re going to use blockchain to defeat LeBron.'”

In a room full of ethereum devotees, Chieng’s jokes garnered laughs, but also hit on topics that should cause blockchain enthusiasts to ruminate on.

For instance, Chieng was critical of all the attention cryptocurrency was getting, questioning its resurgence in interest since peer-to-peer technology has been around since decentralized file-sharing platform BitTorrent.

Lubin – who had trouble getting a word in – acknowledged this, but said the time is right for decentralized technology to take hold.

“BitTorrent was attacked in significant ways. It was stigmatized and didn’t come out at a time when there was popular sentiment,” Lubin countered, adding:

“Trust is lost in centralized institutions.”

Indeed, several speakers at the two-day conference mentioned Facebook’s recent scandal, which saw third-parties were collecting Facebook user’s private data, as an example of how the narrative around these centralized institutions is starting to shift.

Money madness

Still, Chieng didn’t let up, saying that the drastically fluctuating prices of cryptocurrencies should be seen as an obvious sign of a bubble. Although he chided, he is more than willing to make money off of it.

Blockchain, he said, is “what dumb people like myself can make money off of in the short term.”

According to Chieng, he hasn’t succeeded in that mission just yet. He told the audience that after the initial Daily Show segment with Lubin, a viewer emailed him to thank him for making dogecoin, the silly cryptocurrency with a Shiba Inu dog mascot, pump (even though the show spoke about it in a negative light).

“And then I stupidly jumped on Ripple. What a mistake that was,” Chieng said, before declaring: “Fuck Ripple.”

Lubin tempered the exuberance over price, saying that ConsenSys has a policy that developers can’t talk about the price, suggesting the usual narrative in the space that the technology is much more important and interesting than the price.

But, Lubin said, bull markets are nice in that they spur more funding and participation by entrepreneurs and technologists.

“It’s great when the price goes up because it brings more resources into the ecosystem,” Lubin said.

Chieng still seemed skeptical, and speaking possibly to many outside observers’ feelings about the space, said:

“This is either the biggest scam or the most undervalued asset in humanity. It could still be either way.”

Kavita Gupta, Joseph Lubin and Ronny Chieng on stage at Ethereal Summit image via CoinDesk

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Bitcoin Risks Deeper Pullback After Drop Below $9K

After an overnight drop, bitcoin looks to have found acceptance below $9,000 and risks a deeper pullback, the technical charts indicate.

The cryptocurrency hit a one-week low of $8,652 on Bitfinex earlier today and is now trading at $8,700. The 10-percent decline from the weekly high of $9,767 on Wednesday has neutralized the immediate bullish outlook.

Further, the failure to hold above the key technical levels – descending (bearish biased) 100-day moving average (MA) of $9,126 and the double top bearish reversal neckline of $9,280 – will be discouraging for the bulls.

However, only a break below $8,459 would signal a short-term bearish reversal and open the doors for a deeper sell-off.

Daily chart

BTC created a bearish outside-day candle on Wednesday (trading range was wider than Tuesday’s high/low), which, as per textbook rules, is a sign of sudden bearish reversal. That said, traders and analysts usually want to see negative price action on the following day, before calling a bearish reversal.

Accordingly, only a close (as per UTC) today below the key support of $8,459 (April 15 high) would confirm a short-term bullish-to-bearish trend change and open doors for a deeper pullback.

However, BTC is showing signs of a negative follow-through, as currently it is trading under the previous day’s low of $8,765 – though the downside is capped by the ascending (bullish) 10-day moving average at $8,706 and the gradually ascending (bullish) 4-hour 50-day MA.

4-hour chart

BTC may regain some poise if the bulls manage to defend the 4-hour 50-day MA in the next few hours. On the other hand, a failure to hold above the bullish 4-hour 50-day MA and 10-day MA would boost the odds of sustained drop below $8,459.

View

Confirmation of a bearish outside-day reversal would open up downside towards $7,823.

A daily close (as per UTC) below that level would signal a violation of higher lows and higher highs pattern (bullish setup) and would also mean the long-term descending trendline breakout has failed. In such a case, BTC could revisit the April 1 low of $6,425.

Bullish scenario

BTC will likely revisit $9,280 if the bulls manage to defend the 4-hour 50-day MA and 10-day MA in the next few hours.

Acceptance above $9,280 would expose the 200-day moving average, currently located at $9,853.

Water drop image via Shutterstock

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The Code for Ethereum’s Consensus Change Is Now Ready for Review

New code written to change the way the ethereum network reaches consensus is now ready for review, developers said Friday.

Ethereum improvement proposal (EIP) 1011, known as Hybrid Casper FFG (short for “Friendly Finality Gadget”), would implement the first step in a long-planned shift away from the energy-intensive mining process and toward an allegedly greener method sometimes called “minting.”

Ethereum’s current consensus protocol – the way the network agrees to add a new block to the chain – is called proof-of-work and requires resources to be expended as its “proof.”

Ethereum’s creator Vitalik Buterin and other developers have discussed eventually moving to a proof-of-stake model, in which users lock ether up in special wallets and risk losing these “stakes” if they don’t follow the consensus rules. That planned transition to proof-of-stake is known as Casper.

EIP 1011, if implemented, would be a first, partial step toward the full move to Casper, introducing a hybrid system that combines proof-of-work and proof-of-stake, an approach discussed in papers unveiled last year.

Casper, while long in the making, is still controversial in some quarters – for example, a security researcher at VMware called it “fundamentally vulnerable” last month.

Yet Danny Ryan, one of EIP 1011’s authors, along with Chih-Cheng Liang, told fellow developers during a meeting Friday that the proposed code is “ready for review, community discussion, etc.”

Ryan added that development work for ethereum clients could begin soon and that he was corresponding with the formal verification engineers.

“As these pieces of the puzzle are getting closer to being completed,” he said,  “I’ll signal that it’s time to start talking about fork block numbers.”

As Ryan suggests, the change will not be compatible with existing ethereum software, meaning that the network will have to undergo a hard fork to be implemented. That said, there’s still some way to go before that happens.

“In terms of testing … I don’t know when exactly that happens,” Ryan continued, adding that he would “leave the EIP up for discussion a little bit longer before we start doing testing on that side.”

Code image via Shutterstock.

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$10K Test? Bitcoin Price Hits 4-Week High As Altcoins Shine

Bitcoin hit four-week highs in Asian hours but continues to underperform when compared to alternative cryptocurrencies (altcoins).

Having scaled a long-term bearish trendline, the world’s largest cryptocurrency by market capitalization rose to $9,021 at 07:30 UTC – the highest level since March 22, according to CoinDesk’s Bitcoin Price Index (BPI).

As of writing, bitcoin (BTC) is changing hands at $8,700 – up 34 percent from the April 1 lows below $6,450. The market capitalization hit a one-month high of $152 billion earlier today and was last seen at $148 billion, according to CoinMarketCap.

But BTC’s rally, though impressive, looks flat when compared to the performance of the top 25 cryptocurrencies by market capitalization.

Data source: CoinMarketCap

 

Clearly, it has been the altcoin show so far. The lesser-known cryptocurrencies like populous are leading the cryptomarket rally.

EOS is now the fifth largest cryptocurrency by market capitalization, courtesy of the 106 percent price rise from April 1 low. Litecoin has dropped to number 6. Meanwhile, bitcoin ranks fourth from the last, despite having rallied 34 percent since April 1.

BTC’s underperformance could be an indication the cryptocurrency is fueling the rise in the altcoins. Moreover, most altcoins are traded against BTC. So, investors pouring money into crypto markets tend to buy BTC first and then rotate the money into altcoins. The recent drop in the bitcoin dominance rate from 45.62 percent to 37.98 percent (today’s low) also seems to suggest so.

History shows the altcoins surge happens after BTC reaches dizzy heights. For instance, BTC rally looked overdone in December and was followed by a rotation of money into cheap altcoins in late December and early January.

However, this time, the alternative cryptocurrencies have outshone bitcoin at a time when the crypto market leader is recovering from a three-month sell-off. This indicates growing confidence in the alternative currencies and also adds credence to the argument the crypto market has bottomed out.

Moving forward, the crypto markets could remain solidly bid as the world’s largest cryptocurrency has witnessed a major bullish breakout.

Bitcoin daily chart

The above chart (prices as per Bitfinex) shows:

  • The long-term descending trendline has been breached in a convincing manner, signaling a long-term bullish-to-bearish trend change.
  • The 5-day moving average (MA) and the 10-day MA are trending north, indicating a short-term bullish setup.
  • The 200-day MA resistance is lined up at $9,737.

View

Despite the pullback from $9,060, the outlook remains bullish. Cryptocurrency may crowd out weak bulls (risk-averse traders) by revisiting the trendline support (former resistance) before finding acceptance above the $9,000 mark.

The bullish breakout suggests the cryptocurrency will likely test 200-day MA hurdle of $9,737 in the short-run.

Only a daily close (as per UTC) below the ascending (bullish biased) 10-day MA would signal bullish invalidation.

Bitcoin image via Shutterstock

The leader in blockchain news, CoinDesk is a media outlet that strives for the highest journalistic standards and abides by a strict set of editorial policies. CoinDesk is an independent operating subsidiary of Digital Currency Group, which invests in cryptocurrencies and blockchain startups.

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