The privacy-focused cryptocurrency zcash has officially implemented its network hard fork, known as Sapling.
Activated on schedule at block 419,200, Sapling has long been planned as an upgrade aimed at making the network faster, lighter and more secure.
On Sunday, the Zerocoin Electric Coin Company’s Elise Hadmon wrote that “Sapling activation, occurring on the momentous occasion of the currency’s second birthday, brings us one step closer to widespread adoption of an open, permissionless and private payment system.”
The company anticipates that transactions will take 90 percent less time and require 97 percent less memory to occur as a result. That being said, the overall zcash ecosystem will still need some time to add new addresses, Hadmon wrote.
Hadmon added that users cannot yet transfer funds from old shielded addresses to the new version without showing amounts, writing:
“This allows us to audit the monetary base of ZEC held in shielded addresses. We are developing a tool to automate the migration of funds in a way that allows users to minimize the impact on their privacy. We recommend that users wait for the release of this tool, if feasible.”
No timeline was presented for when this tool may be released.
Following the upgrade’s implementation, network data indicates that zcash’s hashrate briefly fell to 1.5 GH/s, lower than it has been in nearly three weeks. By press time, however, it had returned to roughly 2 GH/s.
Zcash’s hashrate has been fluctuating between just under 1.5 GH/s and 2 GH/s for more than a month now.
Trees image via Shutterstock
Bitcoin’s Price Counters the VIX, Confirming It’s Still a Risk Asset
Evidence is emerging that bitcoin has yet to truly earn its reputation as an “uncorreleated asset.”
Case and point, bitcoin’s latest sell-off from $6,000 to nearly $3,000 was accompanied by a surge in the CBOE Volatility Index (VIX). The VIX measures the 30-day forward-looking volatility of the S&P 500 to gauge the market’s fear and risk tolerance, which is why it is commonly referred to as the “fear gauge” for the broader U.S. stock market.
In theory, the VIX should be low when the S&P 500 is in a steady uptrend and should only rise as does fear, causing panic selling and for either smart or weak hands to be shaken out of the market.
Bitcoin, being a store of value that isn’t the product of a government, is advertised to be unaffected by the perceived fear or risk in any market, yet as the chart below shows, that is not yet the case.
BTC/USD vs. VIX
The VIX printed two significant peaks in 2018. The first occurred on Feb. 6 when it reached 50.3 and the second on Dec. 24 when it reached 36.1.
At the first peak, the S&P 500 was down nearly 10 percent from its January highs and on the second peak it was down closer to 20 percent from the record highs achieved just two months prior.
Needless to say, fear was, and still is, prevalent in the broader U.S. Stock market, which should have resulted in either a stable or bullish bitcoin, right?
Wrong. Bitcoin inversely correlated with the VIX on both occasions. When the VIX reached its first peak, bitcoin had just finished falling 70 percent from its January highs and during the second peak, its price had just declined another 50 percent.
Bitcoin’s negative correlation with the VIX shows it performs poorly when fear in the U.S. equities market creates a “risk-off” environment – by definition, the opposite of a safe haven asset.
Gold vs. Bitcoin
For reference, the globally recognized safe haven asset, gold, positively correlated with the VIX during its two major peaks in 2018.
During the VIX’s February high, gold (US$/OZ) largely traded sideways between $1,300-$1,370 and only began to fall toward $1,160 in May as the VIX sank and the S&P 500 regained strength.
Gold, again, correlated with the VIX during its December peak. As equities began crashing and fears of a global economic recession circulated, the shiny metal had already been in a 20 week long and more than 10 percent uptrend.
Indeed, the physical physical store of value is still earning its name as a safe haven asset while the digital alternative has yet to be able to.
Disclosure: The author holds BTC, AST, REQ, OMG, FUEL, 1st and AMP at the time of writing.
bull bear reflection via Shutterstock
Proof-of-Stake Could Lead to Crypto Banking. Let’s Avoid That
Michael J. Casey is the chairman of CoinDesk’s advisory board and a senior advisor for blockchain research at MIT’s Digital Currency Initiative.
The following article originally appeared in CoinDesk Weekly, a custom-curated newsletter delivered every Sunday exclusively to our subscribers.
With last week’s Constantinople delay offering a reminder that ethereum faces challenges in its long roadmap to migrate from a proof-of-work (POW) consensus algorithm to proof-of-stake (POS), it’s easy to miss the fact that elsewhere in crypto-land, POS is already a thing.
A little-discussed ramification is that POS will drive new business and financial models for cryptocurrencies, which will, in turn, give rise to a new regulatory and security challenges.
Viewed through the prism of traditional finance, a consensus model in which owners of cryptocurrency earn block rewards when they stake, or deposit, their holdings to “vote” on ledger validation starts to look a bit like an interest-earning function. And when third parties, such as those that are starting to provide “staking as a service,” do this on behalf of coin-holders who trust them to provide custody and exchange functions, it starts to look like banking.
That assessment would rightly alarm crypto traditionalists. And it’s one reason why some warn against these attempts to improve on the POW model on which bitcoin is founded, arguing that POS will diminish security and incentivize centralization.
But although the Lightning Network and other “Layer 2” solutions may help bitcoin and other POW coins resolve scalability and cost problems, proof of work faces real challenges both in terms of computational efficiency and in its public perception as an environmental threat.
As such, it’s hard to imagine there won’t be continued and growing support for chains using proof of stake and its cousin, delegated proof of stake (DPoS), which draws from notions of representative democracy to increase efficiency at the cost of some centralization.
Already, out of the 19 leading blockchain projects reviewed on CoinDesk’s Crypto-Economics Explorer, three – Cardano, Dash and Qtum — are using proof of stake and another three – EOS, Lisk and Tron – use DPOS. Four of those six are among the top 15 ranked cryptocurrencies cited by CoinMarketCap.com, collectively accounting for $6 billion in coin value as of Friday afternoon.
If we added ethereum to that group, along with Tezos, another prominent blockchain project using a variation of POS, the total market cap of these leading POS chains would run to $18.8 billion.
That’s still less than a third of bitcoin’s total $64 billion valuation. Nonetheless, this universe of future and current POS chains can’t be ignored. We need to think hard about what POS means for the evolution of a crypto-based financial system.
A business waiting to happen
I hadn’t given this much thought until I read an excellent Twitter thread from Israel-based blockchain entrepreneur Maya Zehavi in which she assessed aspects of a new report from the European Securities and Markets Authority (ESMA) on regulating crypto assets.
Zehavi made the point that while ESMA is recommending that crypto exchanges now employ systems of segregated accounts, in the future there will also be a need for “exchanges to explicitly inform clients whether their funds are used for staking purposes” and to “get specific consent.”
It got me thinking of how unavoidably appealing staking-as-a-service is for all the exchanges managing people’s trading in POS coins. There are no clear signs that any are actually doing this with crypto tokens in their custody – and if that is happening without users’ consent, it needs to stop. But the idea of helping their clients earn revenue on their otherwise dormant coins, and charging a fee for doing so, is surely an attractive one for both sides.
A bitcoin utopia in which “everyone is their own bank,” with complete control over their private keys, may well be desirable from a decentralization and security perspective. But millions have shown that they are happy to have an insured third party handle custody for them rather than have sole control over their assets. The success of Coinbase and other such custodial exchanges and wallet providers speaks to this.
Now, add to that the prospect of having that exchange or dedicated custodian manage staking rewards on people’s behalf and it’s easy to see many people going for it.
There’s a fiat equivalent: most of the world’s savings in dollars, euros, yen and all other traditional currencies sit in either interest-bearing bank accounts or are pooled into funds whose portfolios are managed by third parties. People find it both convenient and more effective to pool their monetary power with others and have an outsider invest it for them.
Back to the future
But, hang on a second. Aren’t we just recreating the old banking world with all of its attached system and counterparty risks? Maybe, yes.
As Viktor Bunin of Token Foundry points out, if we can envisage staking-as-a-service becoming so popular that pretty much all coins permanently reside with the most trusted of these custodians, constantly earning rewards, then we can also imagine those entities issuing tradable, interest-bearing depositary receipts based on the coins held with them.
Given the unlikelihood that all users’ coins will be withdrawn from that institution at the same time, those receipts would trade at par, which could mean they’re treated as a unit of exchange equivalent to the value of the underlying deposited coins, essentially allowing for off-chain monetary creation.
“Congratulations!” writes Bunin, “We’ve come full circle to reinventing fractional banking! You now have an asset AND a financial instrument that’s a claim on that asset.”
Anyone who’s studied the history of banking, specifically of bank runs, of systemic risk and all the panics that have led to repeated crises in our financial system, and who’s also watched how governments have stepped into the crypto space in the name of protecting consumers, will know that this scenario will inevitably invite another layer of regulation. And for a host of reasons, including for keeping the cost of entry down for breakthrough startups, that can be problematic.
Now’s the time to try to get ahead of this. As with many other ideas that try to wrestle control over security risks away from regulators and put it into users’ hands via blockchain-inspired governance, the way forward may lie in innovators developing decentralized solutions.
Not unlike the work going into decentralized exchanges and atomic swaps that protect users from the counterparty risks with centralized exchanges, so too can developers look at decentralized systems for pooling assets employed in staking services.
One way to think about it is illustrated by a proposal for creating block producer pools run by their own decentralized applications, so that smaller players can participate in EOS’s lucrative reward system for delegated block producers.
Another way to add protection to the system might be to somehow apply multi-sig custody arrangements in staking service agreements, so that clients retain ultimate control while service providers are still empowered to execute staked votes.
As investor Arianna Simpson has documented, staking-as-a-service is already taking off, with the early players earning steep margins. She notes a natural trajectory by which new competitors will enter the market and narrow the spread, making this more attractive for the wider market.
The time to figure out what this means for the crypto financial system is now.
Ethereum image via CoinDesk archives.
CoinDesk’s Crypto-Economic Data Is Now Accessible on GitHub
Nolan Bauerle is research director at CoinDesk.
For more data and insights, visit the CoinDesk Crypto-Economics Explorer.
Starting today, CoinDesk will use GitHub to help crowdsource potential methodology changes and data sources for our Crypto-Economics Explorer (CEX), our comprehensive data tool designed to measure and compare crypto assets.
After we launched the beta version of our tool in November, the clearest critical comment we heard was related to our methodology for calculating developer interest in a blockchain. More precisely, we heard feedback on the decision to only count activity on one GitHub code repository toward each blockchain’s “developer score.”
The critique was that the methodology behind the CEX was insufficient to measure developer interest across each project.
As an example, bitcoin’s reference implementation is Bitcoin Core (which is the repository the CEX tracks). While that works fine for bitcoin, ethereum is implemented through several clients, which includes the largest repository (Geth, which we track), but also the independently developed, interoperable, but equally important Parity client (whose repository is not currently tracked in the CEX), as well as clients such as cpp-ethereum and still others.
By counting bitcoin’s single client, critics said the CEX painted a more accurate picture of developer interest in bitcoin, but by counting only one client for ethereum, the explorer missed out on some of the developer interest on that blockchain.
Our logic for the conservative approach was that we wanted to get the beta version of our tool off the ground with a lowest common denominator — developer interest in core protocols as implemented in their principal client. Comparisons of highly heterogeneous blockchains is a challenge and we wanted to have a solid foundation before we expanded data points and methodology any further.
The plan from there was, and is, to grow the list of code repositories we track. Our ambition is to soon track GitHub activity beyond the core protocol and client implementations all the way to associated projects built off of that blockchain, including wallets, dapps and layer-two solutions like state channels and sidechains.
After we launched and heard the criticisms, we set out to implement our full vision and expand the repos and activity on GitHub we tracked. When we started, however, we quickly realized the complexity of this task. What we wanted to do meant tracking thousands of projects and repositories. What we needed was a solution that could scale to the complexity and size of the industry and that could capture developer interest and activity in a blockchain from “head to toe.”
Our solution is now to go directly to developer communities, enabling the coders powering various blockchains to provide their input on our methodology in a setting that’s most apt given their work.
That is, Coindesk Data has now published the methodology and data sources for the CEX’s developer interest in GitHub itself.
There are several master files in our new repository to get the effort launched: one for the repos we currently track, another for the weights we give each data point, and finally another for the methodology of how to integrate associated projects in the future.
The goal is to use GitHub’s workflow tools to help us scale this important metric. Now, anyone can make a pull request for CoinDesk Data to follow a repository, to change weights given to a certain data point or to help inform any larger methodology change.
The hope is that this forum will help us harden the methodology, spark debate and scale our coverage to every corner of GitHub related to our industry. We look forward to your continued feedback.
Image via CoinDesk CEX
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