What is the nature of the cryptocurrency phenomenon?

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1) Iterative Capital: What is the nature of the cryptocurrency phenomenon?

This is an in-depth paper written by Iterative Capital at the end of 2018. It systematically and comprehensively reviews the timeline of the birth of Bitcoin and the historical background of the cryptocurrency phenomenon; it is an excellent discussion of how Bitcoin drives people with different motivations and skills Collaborating, Iterative Capital gives its own answer on how to achieve the growth of the value of the cryptocurrency system.

In the final part of this paper, Iterative Capital examines the potential impact of Bitcoin's success and its price expectations, and explains why most altcoins are doomed to fail, and also points out the investment directions and values ​​that investors need to avoid Fields that may accumulate. The following is part of the excerpt:

The paradox of cryptocurrency

• Despite some apparent paradoxes, cryptocurrencies have made headlines around the world. These inconsistencies include:

• Lack of clear utility despite undiminished market enthusiasm

• Disliked by exactly half of Wall Street

• Replicated by the world's smartest entrepreneurs

• Despite rampant fraud, there is no killer app

Big hit in struggling emerging economies

'Delicate balance of terror' when miners rule

In permissionless cryptocurrency systems like Bitcoin, large miners are also potential attackers. Their cooperation with the network is premised on profit; if an attack becomes profitable, then the big miners are likely to try to attack. Those who have followed the development of Bitcoin in recent years know that the topic of miner monopoly is controversial.

Some participants believe that ASICs will undermine the health of the network in various ways. With the concentration of hash rate, the community is afraid that miners will join forces to launch a so-called 51% attack, that is, miners with a majority of hash rate can use this computing power to rewrite transactions, and spend the same funds twice. Second-rate. This attack is common on smaller networks where it is cheap to achieve 51% hashrate.

Any mining pool (or coalition of mining pools) with more than 51% of the hash rate has a "nuclear weapon" in the network. This is effectively using the hash rate to hold the community hostage. The scenario calls to mind Cold War nuclear strategist Albert Wohlsetter's idea of ​​the delicate balance of terror:

"The balance does not arise automatically. First, because thermonuclear weapons provide an enormous advantage to the aggressor, at any given level of nuclear technology, great ingenuity and realism are required to devise a stable balance. Second, The technology itself is changing at an alarming rate. Deterrence requires an urgent and sustained effort."

The "tyranny of structurelessness" under the rule of core developers

While malicious miners pose a constant threat to permissionless cryptocurrency systems, the dominance of core software developers may be equally detrimental to the integrity of the system. In a network controlled by a small number of elite technicians, miners and full node operators running the code may not be able to easily detect spurious changes to the code.

While malicious miners pose a constant threat to permissionless cryptocurrency systems, the dominance of core software developers may be equally detrimental to the integrity of the system. In a network controlled by a small number of elite technicians, miners and full node operators running the code may not be able to easily detect spurious changes to the code.

Various approaches have been taken by the community to combat the outsized influence of miners. Siacoin's team decided to produce their own Asic miner after learning about Bitmain's Sia miner. Communities such as Zcash have a cautious welcome to ASICs. New projects such as GRIN have designed their hashing algorithms to be RAM (random access memory) intensive, driving up the manufacturing cost of ASICs. Some projects like Monero have taken a more drastic step, changing their hashing algorithm just to make one manufacturer's ASIC machine not work. The fundamental disagreement here is not "decentralization" but which faction controls the way the market values ​​the coinbase rewards generated; it's a struggle for control of the "golden goose".

Due to the highly dynamic nature of decentralized networks, acting quickly on the concentration of power around miners can lead to the opposite extreme: concentration of power around top developers. Both concentrations of power are dangerous. The latter extreme can lead to unstructured tyranny where, under the false premise that there is no formal hierarchy of power, the community worships the main committer in a cult of personality.

The term comes from social theorist Jo Freeman, who wrote in 1972:

"As long as groups are structured informally, the rules of how decisions are made are known only to a few, and awareness of power is limited to those who know the rules. Those who do not know the rules and have not been chosen as enlighteners , have to stay confused, or get caught up in the paranoid delusion that something is going on that they don't quite understand."

A lack of formal structure can be an invisible barrier for new contributors. In the context of cryptocurrencies, this means that while there is an incentive to bring more development talent to the team (thus speeding up project development and increasing the value of the network), the open distributed governance system we discussed in the previous section still Something can go wrong.

Dominance by miners or developers can lead to changes in the development roadmap, which can disrupt the entire system. One such example is the bad decisions made by those "big block parties". The Bitcoin network split into two on August 1, 2017, as some miners insisted on supporting larger block sizes, resulting in increased costs for full node operators. And for a blockchain that uses proof-of-work, these operators play a vital role in enforcing its rules. Higher costs could mean fewer full node operators on the network, which in turn makes it easier for miners to upset the balance of power for their own benefit.

Iterative Capital Another example of an imbalance is the Ethereum Foundation. While Ethereum has a strong community of DAPP (distributed application) developers, the core protocol is defined by only a small group of project leaders. In preparation for Ethereum’s Constantinople hard fork, developers decided to reduce mining rewards by 33% without asking miners for their input. Alienating miners over time deprives the network of support from a major stakeholder group (the miners themselves) and creates new incentives for miners to attack the network for profit or revenge.

This paper is extremely exciting and valuable, and I strongly recommend readers to read the full text; I sincerely thank the two authors, Chris Dannen and Leo Zhang, for their hard work, Katt Gu for the translation, and Multicoin Capital executive director Mable for the recommendation.

2) Why are altcoins dying and what will happen after the short-term altcoin spring in January 2020?

The data provider CryptoRank reviewed the dead altcoins. The emergence of a large number of altcoins in 2017 was due to the ICO frenzy. IEOs after ICOs are also not optimistic. As of July 2019, the average ROI of Binance IEOs was 450%. Months later this figure dropped to 72.92%, while many other exchanges had negative values ​​for this metric.

The chart below shows the 10 assets that have fallen the most from their peak prices in 2019:

Bitcoin once captured the vast majority of the market share, but during the altcoin boom in 2017, the dominant Bitcoin’s market share fell from 86% to 33%. Altcoins then began to lose value, and Bitcoin’s market share soared again, reaching nearly 70% in 2019.

Since 2013, most of the top 20 coins have almost completely disappeared, replaced by new assets. Projects like Namecoin, Peercoin, and Feathercoin were replaced by Ethereum, Monero, and EOS. Those once smashing projects not only faded from the memory of the cryptocurrency community, but some were completely abandoned, and their tokens dropped in price multiple times or lost liquidity on exchanges.

Why Are Altcoins Dead?

Altcoins are disappearing so quickly that sites have popped up to track such coins. There are 1839 dead projects on “Deadcoins” and 1407 on “Coinopsy”.

Most projects died in 2018, which is understandable, because in 2017 with the ICO boom, the market was flooded with altcoins, unfortunately, they died as fast as they appeared.

The 4 most common reasons why crypto projects die: Abandoned or close to zero volume; Blockchain scam projects; Fundraising failure; Just a joke.

What's next?

What's next?

As before, the situation has not changed for most altcoins and exchanges. Exchanges continue to manipulate volume, with retail investors chasing short-term profit opportunities.

Many altcoins continue to fall and will likely continue to fall to even lower levels, losing value and liquidity. This is also a result of the fact that most projects are still in the startup phase, while tokens unlocked years later will increase price pressure, and most tokens do not have deflation or other mechanisms that help tokens remain liquid.

However, many are waiting for the spring of altcoins, as they have shown extremely attractive profits in 2017. And in January 2020, many altcoins looked promising again.

In 2020, large-scale projects such as TON, Dfinity, and Polkadot will enter the market, and large-scale stablecoins such as Libra can also bring additional liquidity to the market.

The concentration of funds in assets with large market capitalization has increased. According to CryptoRank data, the Top 20 accounts for 87.6% of the total market capitalization. And as liquidity continues to flow out of small-cap assets, the dominance of these assets may continue to grow.

3) Figment insight into NuCypher

Cryptonetwork operator Figment Networks participated in NuCypher's incentivized testnet, according to a report they wrote about NuCypher.

NuCypher is building cryptographic infrastructure for privacy-preserving protocols and applications, and their Key Management System (KMS) aims to address the limitations of current consensus networks to securely store/send/operate private and encrypted data.

NuCypher's main product, Umbral, is a proxy re-encryption scheme. It will enable proxy entities to convert or re-encrypt data from one public key to another without having access to the private key. They are also working on NuFHE, a fully homomorphic encryption library that allows arbitrary secure computation on encrypted data.

network status

NuCypher’s incentivized testnet is running now, with Phase 2 running until February 17th. The first two phases require users to complete various tasks such as staking, starting nodes, performing re-encryption, and re-earning rewards.

The third phase (expected to start on February 17) will test its new token distribution mechanism called "WorkLock". Although not yet finalized, there will be a 3-4 week contribution period.

4) Gauntlet: Why Uniswap is a good oracle machine

This is an article published on the Gauntlet blog, an encrypted network simulation test platform. Gauntlet recently released an analysis report on Uniswap. This article is part of the report. It seems to have good theoretical support, indicating that a stable Uniswap can serve as a sufficiently decentralized market and a stable price oracle in practice. At the same time, it is very important to have a large capital reserve pool, because all results depend on it.

Uniswap has become a popular alternative to classic order book exchanges, and has become a common mechanism for gauging the relative price between tokens on two chains (contracts attempting to do this are often referred to as "price oracles"). Surprisingly, despite the simplicity of Uniswap's basic idea, the actual results are quite good: in the "real world", Uniswap seems to be able to accurately estimate the relative price of two assets compared to larger exchanges.

The stability of Uniswap is also surprising, as it appears to be immune to bad actors who might try to manipulate prices for personal gain.

For Uniswap users, these results may be intuitive as they see them in action. However, skeptics see this only as a result of favorable conditions, while our analysis provides a mathematical framework for Uniswap to be a good oracle.

5) Why ENS uses Ethereum instead of customizing its own blockchain

Brantly, Head of Operations at ENS, explained why using Ethereum and ETH is the best way to serve domain names on the blockchain.

The Ethereum Name Service (ENS) is named so not because it only supports Ethereum addresses (ENS can support any cryptocurrency address, as well as non-blockchain data like IPFS hashes and Tor .onion addresses), but because it supports Runs on the Ethereum blockchain and pays in ETH.

some history

The first well-known domain name project, Namecoin, launched its own proprietary blockchain in 2011.

To create a new blockchain-based application at that point, a new blockchain dedicated to this purpose must be rolled out (since developing applications on Bitcoin is difficult). This involves having to be knowledgeable enough to create and maintain a new Layer 1, drive a new mining community (grow) to improve security, and finally get people to actually start using it.

The launch of Ethereum in 2015 changed all that. It is now easier to launch a new blockchain application that leverages the security, user base and infrastructure of the existing Ethereum blockchain.

Launched on Ethereum in May 2017, ENS is an open-source and non-profit project that takes advantage of these (and those that follow). ENS has quickly become a leading blockchain domain name project, integrating more than 100 wallets and dapps, and gaining more than 310,000 registered domain names.

Other similar projects have chosen the path of Namecoin. For example, the Handshake blockchain and its affiliated token HNS have been launched not long ago, and the FIO blockchain and its tokens are coming soon. (They also unnecessarily create many new TLDs that will surely end up colliding with the DNS name space. We think this is bad for both users and the use of blockchain technology for Internet domain names)

Benefits of Customizing Blockchain and Token

There are several clear technical advantages to running a name service on a custom blockchain: less blockchain bloat, lower speed and cost of transactions, and a smaller attack surface.

Benefits of Using Ethereum and ETH

ENS believes that the advantages of using Ethereum and ETH far exceed custom blockchains and tokens.

Most obviously, using Ethereum means that ENS gets all the security, robustness, censorship resistance, decentralization and general protocol improvements of Ethereum.

• There are also some other benefits that people may not be aware of:

• Composability and interactivity, such as using ENS to interact with smart contracts or DAOs;

Ecosystem and infrastructure (support), such as ENS's native ".eth" domain name is an ERC721-compatible NFT asset, allowing ".eth" domain names to be embedded in all NFT marketplaces or wallets; ENS can also benefit from Ethereum's existing foundation Facilities such as MetaMask etc.