The Blockchain Bitcoin & Crypto Weekly CXO Briefing is all you need to know, each week, jargon free for CXO level business leaders and investors who will use this technology to change the world. Each week we select the 3 news items that matter and explain why and link to one expert opinion.
News Item 1: Bitcoin slides by over $1,000 in less than 48 hours
Decrypted: The death of SegWit2X signaled the beginning of Bitcoin’s price drop, with much of the support for Bitcoin shifting to Bitcoin Cash, and driving its price climb. Bitcoin reached a record high of $7,888 this past Wednesday, but after the SegWit2x upgrade proposal was cancelled, its price started to plunge, going below $6,000.
It looks like traders are ditching Bitcoin, for Bitcoin Cash. The price for the offshoot cryptocurrency surged over the past couple of days, breaking it previous price high since August 20. Bitcoin Cash went past $2,150, increasing by 250%. Yesterday, Bitcoin Cash overtook Ethereum market capitalization, and briefly was the second-largest cryptocurrency.
The drop comes after the SegWit2x upgrade plan was called off. If the upgrade was implemented, it would of led to another split for Bitcoin, Several experts and investors claim that Bitcoin’s high transaction fees and the cancellation of SegWit2x, pushed existing users from Bitcoin to Bitcoin Cash.
Our take: Since the beginning of this year, Bitcoin’s price has been a roller coaster ride, yet its price has steadily gone up, rising seven times.
Last week, SegWit2x was called off. The planned hard fork, threatened to create two new coins and potentially cause disruptions for exchanges and potential losses for users. With the cancellation of the hard fork, investors started selling their Bitcoin, turning to Bitcoin Cash and other cryptocurrencies, since they wouldn’t be getting the “free” new tokens.
The SegWit2x fork would have increased the block size to 2 megabytes. This change could have helped when it comes to Bitcoin’s scalability. Bitcoin needs a transaction-scaling solution, and it needs one fast. The cryptocurrency has seen better days. According to tradeblock there are now 115,003 unconfirmed transactions, that amount to 110,611 BTC, worth over $700 million, weighting about 36 MB.
However, some believe the number of unconfirmed transactions is increasing due to a surge in fake transactions, and that fear, uncertainty, and doubt (FUD) are currently being spread by actors trying to push altcoins. On r/bitcoin, users claim that Bitcoin is currently under attack, and things might look scary for newcomers:
“Spam transactions galore; fud on every crypto Reddit; hash power temporarily drained off to B cash. Honestly, we’ve seen every one of these before. Nothing is different. Each time this happens, newbies panic and buy some altcoin(s) and then they are left holding the bag when the value flows back to bitcoin and a new wave of users comes in, driving the price up to new highs and becoming the targets of the next alt pump. It’s a cycle that keeps repeating.”
As far as the users are concerned, there is very little difference on the frontend between Bitcoin and Bitcoin Cash. The main difference between these coins is the fact that, given equal hashrate, BCH protocol allows for more transactions per second, which means faster payments and lower fees. Bitcoin Cash is a real competitor to Bitcoin because it combines big 8MB block and quick settlement times without any of the off-chain or side-chain complications associated with segregated witness.
Bitcoin Cash was created on August 1, and since, its market capitalization has jumped to $24 billion in just three months. Today, Bitcoin Cash is more valuable than Twitter, which currently has a market cap of $15 billion. It also closing fast on Ethereum, which has a market capitalization of $29 billion.
Without sufficient hashpower, the Bitcoin network will grind to a standstill. Transactions will take longer to confirm right and users will pay outrageous fees. That in itself is a big problem that needs to be addressed.
Decrypted: After a developer accidentally stumbled upon the bug, deleting a code library for the Parity wallet and freezing more than $152 million-worth of Ether. The unknown developer sent code to the Parity contract, which caused the wallet’s library function to kill itself, rendering all multi-signature wallets unusable.
Parity, which was set up by Ethereum core developer Gavin Woods, admitted today that a user calling themselves devops199 had accidentally triggered a bug in its multi-signature wallets that hold Ethereum coins. As a result, wallets created after July 20 are now locked down and inaccessible, possibly permanently.
Several startups and projects, that launched Initial Coin Offerings (ICOs), have come forward, saying that they are among the 151 addresses impacted by the software failure.
Our take: The Ethereum ecosystem is facing a big question, to fork or not to fork, with the activation of a bug in the multi-signature wallet software released by Parity Technologies. The bug resulted in multi-sig wallet users permanently losing access to an estimated $150 million in funds.
Multi-signature wallets mean more than one person has to sign off on a transaction before funds are moved, and are popular with companies and investment groups looking to protect their assets.
Parity wallets had normal multi-sig wallets, where each new user deploys a new contract with a full copy of the code. To reduce transaction fees, Parity then changed the new wallet deployment to a stub contract that forwarded any contract code calls to a master contract using a delegate call function instead of having a full copy of the code. This let the master contract execute the required piece of code in the context of the stub contract.
However Parity did not remove the self-destruct function in the master contract. Parity furthermore did not set the contract ownership of the master contract. This allowed someone to set themselves as the owner and then call the self-destruct function.
This action destroyed the code used by all the stub contracts deployed since July 20. Those stubs therefore do not have access to functions that let them withdraw the Ethereum they contain locking them out indefinitely. Thus the master-stub design change which was the root cause of Parity’s previous multi-sig hack also caused this very expensive bug.
This is not the first time a bug in Parity’s multi-sig wallet code has caused users to lose funds. Earlier this year, an attacker exploited the multi-sig code to steal more than $30 million worth of ether and could have made off with more money if white hat hackers had not drained affected accounts and returned funds to users.
While all this is going on, the price of Ethereum has not deviated much since the hack or shown any signs of stress. Actually, the price went up, above $320. The rally is surprising, considering that Ethereum might have to fork, because of the vulnerability from Parity’s wallet, otherwise $150 million worth of Ether, including the funds for a number of ICO projects, will be lost.
After the DAO hack in 2016, the Ethereum Foundation implemented a hard fork to restore lost funds, with the common understanding that this was a one-time fix for a young, developing blockchain. This scenario, nevertheless, divided the Ethereum blockchain into two parts and created Ethereum Classic, the original Ethereum blockchain, backed by a community that vehemently opposes editing transaction history to restore lost funds.
While there is no indication as to whats going to happen, using hard forks as interventions to correct worst-case scenarios is highly controversial, especially since blockchains are meant to be immutable. Vitalik has been pretty quiet about the whole thing only tweeting this:
I am deliberately refraining from comment on wallet issues, except to express strong support for those working hard on writing simpler, safer wallet contracts or auditing and formally verifying security of existing ones.
— vitalik.eth (@VitalikButerin) November 8, 2017
The reality is that in order to recover the funds a new fork is needed, or the money will be locked forever. Whatever happens, it will be bad publicity for Ethereum and the cryptocurrency overall as a whole. Essentially, a flaw in an Ethereum multisig wallet leads both retail and institutional investors to question the security of all wallets and blockchains.
Decrypted: Bitcoin and blockchain maybe surging in popularity, but most blockchain projects are actually abandoned within months. More than 26,000 new blockchain projects were created on GitHub last year, and only 8% of these project are still active.
This data comes from a report entitled “Evolution of Blockchain Technology: Insights from the GitHub Platform” that was recently published by Deloitte.
GitHub is a development platform that lets anyone host and review code, manage projects, and build software alongside millions of other developers.
Our take: Deloitte’s report indicates that Github has more than 86,000 blockchain and in first six months of 2017, nearly 25,000 GitHub projects were created. Most projects created by both organizations and individuals was 2016, in comparison to 2015, that had fewer than 15,000.
The report also included data about the top blockchain code repositories on GitHub. Bitcoin has seen the most activity, with 627 total contributors and nearly 12,000 followers. Go-ethereum, the software client maintained by the Ethereum Foundation, has 149 contributors and 5,603 followers.
The report also showed that San Francisco has the most number of repository owners, followed by London and New York.
Bitcoin and Blockchain have been getting a huge amount of attention from the media and almost every industry. Banks, fintech and other companies around the world are joining in, to improve their customer offerings, by using blockchain to make transactions transparent and faster.
The reality is that most open-source projects are abandoned or can’t achieve meaningful scale. Unfortunately, blockchain is not immune to reality the reality that plagues most projects and startups.
But that is not the only reality. Here’s another one: 90% of ICOs will fail. Vitalik Buterin, Ethereum’s co-founder, stated that 90 percent of initial coin offering (ICO) projects or ERC20 tokens launched on top of the Ethereum protocol will likely fail in the long-term.
“It is an established fact that ninety percent of startups fail. And it should also be an established fact that ninety-percent of these ERC20s on CoinMarketCap are going to go to zero.”
In the past, Buterin has said that he considers the centralization of development in ICO projects as a serious flaw in many ERC20 token-based projects. While the Ethereum blockchain, the base infrastructure which supports the ERC20 token standard is decentralized, ICO projects are conducted by a closed group of developers, or in many cases, companies funded by venture capitalists.
While Buterin’s remarks may be interpreted as harsh criticism for the entire cryptocurrency industry, the truth is that the token market needs a healthy dose of realism based on fundamentals, transparency, and responsibility.
With a total market capitalization over $200 billion, the cryptocurrency market has attracted everyone’s attention, from traders that want to make a quick buck to experts that are concerned that it could be a bubble.
The explosive growth of ICOs has also polarized the industry, with supporters saying that ICOs are a revolutionary innovation, that will change the very fabric of our economy and detractors raising doubts about the credibility of ICOs and the lack of regulation.
Bitcoin and cryptocurrencies are practically redefining “money”, and how value moves from one person to another, just like the Internet changed how we share information and communicate.
You would expect a crypto company to leaning towards an ICO, following that same path as many other crypto projects and startups.
But, Bernard is right, Coinbase will most likely go down the IPO route.
Coinbase is already a unicorn. It has raised $100M in Series D funding led by IVP, with participation from Spark Capital, Greylock Partners, Battery Ventures, Section 32 and Draper Associates. The funding gives the digital currency startup a post-money valuation of $1.6B.
In the mid nineties, the Internet did not mean anything for most people. The same holds true today for Bitcoin. Most people have not heard or don’t know what Bitcoin is. The reality is that Bitcoin’s impact and influence is still very small. Today, there’s an estimated 15–35 million Bitcoin users. That’s around 0.3% of the world’s population, very similar to the number of Internet users before its Netscape moment.
And Bitcoin needs its Netscape moment.
The Netscape IPO in 2005, is considered by many to be the start of the Internet boom. The fact is, that the Netscape IPO was extremely significant for the dotcom industry, because it proved that institutional investors were willing to buy into a company that navigated in uncharted territory, without profits, and invest in the promise of the Internet. All of the excitement surrounding Netscape eventually caught Microsoft’s attention. A week after Netscape’s IPO, the software giant in Redmond, released the first version of Internet Explorer, kicking off the browser wars of the ’90s.
A Coinbase IPO could have the same significance. The market needs a strong company to take the entire crypto industry public. A crypto company IPO, would help the industry mature beyond the basic building blocks of a blockchain, to more consumer-facing offerings. It would usher the entire industry into a new stage of evolution, to a phase in which more consumers interact with blockchains and cryptocurrency, but are not necessarily aware they are doing so or really care, as long as its fast, transparent and gives them that freedom that today’s centralized platforms lack.
Ilias Louis Hatzis is a Blockchain entrepreneur who writes the Blockchain Bitcoin & Crypto (BBC) Weekly CXO Briefing each Monday.
Get fresh daily insights from an amazing team of Fintech thought leaders around the world. Ride the Fintech wave by reading us daily in your email.