Tuesday, September 20, 2016

7 Financial Firms Test Blockchain for Data Management

 

Credit Suisse, Citi and HSBC are among seven financial firms to participate in a data management trial announced today and conducted with support from blockchain firms Axoni and R3CEV.

Featuring buy-side and sell-side firms, the multi-month effort envisioned how a distributed ledger prototype could be built to enhance risk management, cost and efficiency issues when managing financial reference data. Also involved was the Securities Industry and Financial Markets Association (SIFMA), a trade group representing US securities firms.

According to a release, the prototype used Axoni Core, the startup's proprietary distributed ledger software to simulate the collaborative management of reference data used in corporate bond issuance.

The companies said:

"The technology enabled participants to interact with reference data after issuance, with any proposed changes requiring validation by the underwriter to ensure the ledger provided a single, immutable record of all data related to the bond."

According to the companies involved, the project was able to demonstrate how regulators and network participants can use the technology to see which parties on a ledger have created, issued and proposed amendments to a data record.

In statements, David Rutter, CEO of R3, and Emmanuel Aido, Credit Suisse's blockchain and distributed ledger lead, spoke to the benefits that this new approach to data management could bring to the financial industry.

"Quality of data has become a crucial issue for financial institutions in today's markets. Unfortunately, their middle and back offices rely on legacy systems and processes – often manual – to manage and repair unclear, inaccurate reference data," Rutter said.

Monday, September 19, 2016

9 Must-Watch Talks at Ethereum's Big Developer Event

 

The world's second largest blockchain network is set to host its annual developer conference this week.

To be held in Shanghai, Devcon2 is expected to draw upwards of 700 attendees, with a lineup featuring many notable developers of the smart contract blockchain. On hand for talks and panels will be ethereum creator Vitalik Buterin, lead Casper developer Vlad Zamfir and creator of the Solidity programming language, Christian Reitwiessner.

Also speaking are members of enterprise financial firms, including Microsoft and Thomson Reuters, with more rumored to be in attendance.

Given the recent trials and tribulations of the emerging technology, however, the tone of this year's Devcon, seems likely to change. As the project is seeking to bounce back from the events of this summer, which saw a notable project collapse and its community locked in fierce debate, the dialogue is likely to provide color on how its leaders believe it can move forward from past challenges.

A look at the schedule reveals a heavy focus on security and scalability – two issues that are top of mind for developers working on blockchain projects globally. Further, there is likely to be a focus on use cases that highlight how the public ethereum blockchain, as well as private implementations, can be used today.

Heading there yourself or watching the livestream? Here's our round-up of the events on our schedule.

1. Ethereum in 25 Minutes – Vitalik Buterin

To warm up before the more technical presentations, ethereum creator Vitalik Buterin will briefly break down the smart contract blockchain's core components, describing technical terms such as "uncles" and "gas" and what they mean for the network.

The talk is likely to be a must-see for those looking to get up to speed with the project and its various complexities by offering a big-picture view of its goals and vision.

Given the long relevancy of some of Buterin's earliest talks, this new presentation could prove to be one for the time capsule.

2. Swap, Swear and Swindle. Swarm Incentivization – Viktor Trón and Dr Aron Fischer

One of the long-term goals of ethereum is to use the blockchain to build a next-generation World Wide Web (Web 3.0), one that tears out its current underpinnings and replaces it with a new setup that doesn't rely on big intermediaries.

But that vision will require a lot of steps, one of which is a lesser-known protocol called Swarm.

With the relatively high price to transact on the ethereum network currently, it remains prohibitive for users to store data directly on the ethereum blockchain. Swarm, which operates similarly to BitTorrent, could allow contracts to be smaller in size, while delivering large quantities of data off of the blockchain.

In this talk, developers Viktor Trón and Dr Aron Fischer will explain how the system for storing files functions, how it encourages people to use it, and why it will be key to the future of the network.

3. A Correct-by-Construction Asynchronous Casper Protocol – Vlad Zamfir

Ethereum is slated to change drastically in the years ahead.

Arguably central to this vision is the migration of the network from ethereum's current proof-of-work blockchain to one that uses a transaction validation mechanism known as proof-of-stake (POS). Announced in 2015, 'Casper' is the nickname for the technology, one that promises to resolve historical issues with POS validation and that remains a big question mark on the network's roadmap.

Here, ethereum developer Vlad Zamfir is likely to shed light on a process that has mostly occurred behind closed doors.

4. State Channels: Systemic Security Considerations and Solutions – Joseph Poon

Continuing with the focus on scaling solutions, two presentations will explore 'state channels', networks that live a layer above the blockchain that aim to expand the volume of transactions and smart contracts that ethereum can handle.

The talk is likely to be notable as it is slated to be given by the creator of the Lightning Network, the best-known off-chain payment channel network, but one that is envisioned for use on the bitcoin blockchain.

In interview, Poon said his talk will outline security concerns that ethereum developers should watch out for when building their own similar off-chain micropayment networks, as well as his recommendations for how similar ethereum projects can advance harmoniously.

Poon told CoinDesk:

"My intention is to facilitate cross-chains so that cryptocurrency exchanges can be further decentralized."

As it remains one of the rare slots on the schedule that promotes cross-blockchain developer collaboration, this talk could prove one to watch.

5. Panel: Smart Contract Security in Ethereum

Given the collapse of The DAO, this panel could prove one to watch.

There's been particular emphasis of late on designing smart contracts that are more secure and easier to use, and much of the blame (at least in the public's eye) has fallen on ethereum's new smart contracting language, Solidity.

Following The DAO's collapse, big banks like Barclays and smaller startups have been investing time and energy in alternative smart contracting languages.

As such, while the panel will focus on the "implications and developments" of smart contracts, panelists including Solidity creator Dr Christian Reitweissner and ethereum creator Vitalik Buterin may be best served by making the case for the continued development of their open-source tools.

6. Formal Verification for Solidity – Dr Christian Reitweissner

'Formal verification' – keep your eyes on the term, as it's likely to be a buzzword as we head into the fall and winter months.

Given the problems with smart contracts mentioned above, there's ample interest in developing ways of determining if the technology is secure before it's deployed. With the interest and money of large financial institutions on the line, it's safe to say that ensure formal verification for ethereum's Solidity language is top of mind for the network.

Here, Solidity creator Dr Christian Reitweissner will be presenting on formal verification for the smart contracting language, and any new developments here are likely to impact decision-making in the industry in the months ahead.

7. Imandra Contracts: Formal Verification for Ethereum – Dr Grant Passmore

See, we told you it was a hot topic!

We don't know a lot about "Imandra contracts" (other than they use artificial intelligence), or how they could help mathematically verify ethereum's code , but given the background above, the talk is likely to be focused on shaping the discussion of the security of the network and its tools.

8. Mist Vision and Demo – Alex Van de Sande

The browser of the ethereum network, Mist, has perhaps been overlooked given the emphasis on the inner-workings of ethereum.

However, as decentralized applications seek to hit the market, they'll need a user-friendly interface, and this Mist demo is likely to show how far the ethereum community has come in making progress toward this goal.

9. Ethereum Blockchain Initiatives at Thomson Reuters – Dr Tim Nugent

One of just a few enterprise institutions at the conference with a solo speaking slot, this talk from Dr Tim Nugent will shed light on internal R&D at the mass media firm.

As mentioned in past interviews, executives at Thomson Reuters are bullish on use cases including data delivery and digital identity.

As more institutions open up about their creations on ethereum, this will certainly be one to watch, providing insights into how enterprises believe they could leverage ethereum and its technology in the months and years ahead.

Ethereum's 'Holy Trinity' Takes Shape As Swarm Testnet Arrives

 


A big piece of ethereum's decentralized "world computer" will be launching its first public testnet in the coming weeks.

With the launch of the Swarm testnet, the network will be open for any developer to test the new file storage system and identify and fix potential issues. Developers can also use any ethereum client (whether geth, parity or the python client) for their work.

According to developers involved, the move that takes the project one (small) step closer to making its full vision a reality.

On the Internet today, centralized servers owned by for-profit companies hold most of the world's data. But Swarm wants to shake this up by building on an old idea – file sharing.

You might be familiar with BitTorrent, a similar way of file sharing over a peer-to-peer network. The problem with the network, according to the Swarm team, is that it relies on the generosity of its users, that and it's too slow to use as the base for a new web.

Swarm lead developer Viktor Trón told CoinDesk:

"[BitTorrent] never really caught on to the point where they can serve real-time interactive web applications."

The updates were part of a talk at the ethereum developer conference Devcon2 today, entitled "Swap, Swear and Swindle. Swarm Incentivization", given by its team leads, Trón and Aron Fischer.

Decentralized versions of photo albums, file managers, corporate storage platforms and GitHub are a few ambitious examples for how Swarm could come to be used.

"The result would be a much more decentralized Internet, both in terms of service provision and in terms of wealth distribution," Trón said. "It's just as much a social objective as it is a technical project."

'Holy Trinity'

So, how exactly does this fit into ethereum's "world computer" idea?

The big picture vision is to use ethereum's "holy trinity," as Trón called ethereum, Swarm and a messaging system called Whisper, to build the low-level groundwork for this new World Wide Web.

Ethereum already puts the computational part into place, but it provides limited space. Swarm adds a storage layer to the system. Essentially, it remains too costly to store everything on a blockchain. In this way, Swarm allows data to be referenced on a blockchain, but stored elsewhere.

Yet, in the talk, the developers indicated that incentivizing a file sharing network remains a work in progress. As noted in the presentation, Swarm enables content to be retrieved, but there is no guarantee it will be available.

Trón outlined how Swarm is seeking to create a system based on what he called "proof of custody", one whereby users would commit a payment to store data, which could be paid incrementally to the person storing it.

"The proof of custody construct makes it so actually you could have a very good level of security that your content is being stored by the storer," he said.

Swarm then uses a "judge contract", a smart contract that would ensure that the data won't be paid if what they have agreed to watch goes missing.

Swear and swindle

However, Swarm also needs a system to ensure that the users storing its data are penalized if they break a promise.

This is where a "Swear contract" comes in, as the smart contract allows nodes to register by posting a security deposit. Registered nodes, the developers explain, can sell promissory notes guaranteeing long-term data availability, which would be exchanged for receipts.

If the data that is overseen by the contract is lost, a feature called a "Swindle" contract comes in. Should a user with a receipt find that their data is no longer available, they are allowed to start a process Fischer likened to litigation.

Here, Tron used the analogy of a babysitter to set the scene for the stakes involved in the high-tech dispute.

"Once it gets to this stage, the only way a peer can defend themselves against a challenge is to say, 'Your baby is here, it's OK'," Tron explained.

Toward a Web 3.0

But if it all goes according to plan, users will have a similarly easy experience using Swarm.

Of note is that Web 3.0 isn't a term that ethereum owns, rather it's a concept that its developers are rallying around. Trón argues that the blockchain was the "missing puzzle piece" to making this reality and that there are "no more excuses" for big intermediaries (think Facebook or Google) to be the only companies able to provide Internet services.

The second Swarm code proof-of-concept was released in May, and if all goes well, they say they will migrate the testnet to the official ethereum testnet, Morden.

Trón said they already have plans for a third and fourth code proof-of-concepts, which will include more comprehensive internode communications, data streaming and decentralized database services.

When asked whether he thinks the file program will work in the end, Trón responded that he doesn't know, but that "we came up with something that we think is pretty good."

Pete Rizzo contributed reporting.

Sun through clouds image via Shutterstock

Friday, September 16, 2016

Vitalik Buterin to Debut Ethereum Scaling Paper at Devcon

 

Ethereum creator Vitalik Buterin will present a new version of the project's 'mauve paper' at a developer conference in Shanghai next week.

Scheduled for 19th September, a talk called "Mauve Revolution" will focus on scaling features still in development on the decentralized application platform, including sharding and proof-of-stake.

The third version of the paper, it is likely to keep a similar spirit as past editions, which have seen Buterin use a tongue-in-cheek tone to discuss the big-picture developments the project is seeking to enact as it approaches key development milestones.

In interview, Buterin said that the talk will discuss the planned transition of ethereum's current code to a new, upgraded version of the platform dubbed "ethereum 2.0", a transition he estimates is about one-third complete.

Buterin said it is this "second stage" that the paper will discuss, telling CoinDesk:

"The ethereum roadmap now has what I would consider three main stages. The first stage is already finished, the second is [about] getting PoS out the door and adding in economic finality and basic sharding."

However, Buterin indicated that ethereum very much remains a work in progress, and that he sees this stage of its development lasting until 2020 or later. Should the network reach version 3.0, he said he's still considering how it would move forward.

"I think the third stage will be much more challenging," he said, adding:

"[It] will require heavy involvement from people who have been thinking about problems like p2p network design, distributed hash tables, distributed systems concurrency for decades and are smarter than myself."

Big Banks Invest $55 Million in Blockchain Startup Ripple's Series B

 



Distributed ledger settlement startup Ripple has raised $55m in venture capital from a mix of financial industry heavyweights.

Participating in Ripple's Series B round are Standard Chartered, Accenture Ventures, SCB Digital Ventures, the venture arm of Siam Commercial Bank and SBI Holdings. Additional investors include Santander InnoVentures, CME Ventures, Seagate Technology and Venture 51.

With a growth trajectory that will soon force the settlement startup out of its San Francisco headquarters, much of those funds will be spent on expansion projects including sales and marketing. However, the investment is distinct for Ripple in that some of the funds could also fuel new acquisitions.

Ripple president and COO Brad Garlinghouse told CoinDesk:

"This gives us a strong balance sheet to also consider acquisitions. There are a lot of small players doing something interesting. Historically, we wouldn't be interested, but going forward we may be."

In total, Ripple has raised $93m venture capital including earlier investments from Google Ventures, Andreessen Horowitz, IDG Capital Partners and Jerry Yang's AME Cloud Ventures, a figure that makes it one of most-funded blockchain firms.

While Garlinghouse wouldn't give any details about which startups the company might have in its sights, he did reveal new information about how it would seek to evolve its strategy in the months ahead.

Customer acquistion

When Ripple was founded in 2012, the company emerged virtually without competition in its efforts to explore blockchain technology. At the time, most startups were focused solely on the bitcoin protocol, and the use of cryptographic code as currency.

But, Ripple (then called OpenCoin) was already working to distinguish itself to its potential customers, bringing to the table a novel take on the technology as well as experienced financial executives in the form of CEO Chris Larsen, who joined in 2013.

Unlike bitcoin, Ripple's consensus ledger is permissioned, meaning banks don't have to worry anonymous entities are validating transactions. Further, Ripple's distributed ledger products and services can operate without its native currency, XRP.

But, success hasn't been overnight. It took a year for the distinctness of these dual offerings to net Ripple's first customer, German Internet bank, Fidor. Four months later, the company signed its first two US banks, and within six months, the firm had signed a dozen more, according to Garlinghouse.

But Garlinghouse credits last year's Sibos banking conference for a recent burst of new customers formally announced today.

"It was one of our largest expenses," he said. "But it was also our best ROI."

Bank partners grow

In addition to today's funding news, Ripple announced its largest batch of banks will formally join its network: Standard Chartered, Westpac, National Australia Bank (NAB), Mizuho Financial Group (MHFG), BMO Financial Group, Siam Commercial Bank and Shanghai Huarui Bank

Each financial institution has successfully transferred actual money on the Ripple network, according to the company, and all are currently building commercial products, though specific use cases vary.

As an example, Garlinghouse told CoinDesk that one of China's rare privately-owned banks, Shanghai Huarui Bank, is working with Ripple on a new commercial cross-border payment service so its retail customer base can send money internationally in real-time.

Initially, Shanghai Huarui Bank is targeting Chinese families that want to give money to students studying abroad in the US.

In total, Ripple's network now includes 15 global banks, with 10 banks in commercial deal phases. Further, it claims it has now completed 30 pilot projects.

Growth spurt

Along with the new crop of paying clients, Ripple has been experiencing other forms of growth, according to Garlinghouse.

Currently, the firm employs about 150 people and it's hiring 25 more.

Over the past quarter, more than 50% of Ripple's hires have been engineers, he said. And he estimates that his compliance department is larger than most of the startups Ripple competes against. "Banks need that support," said Garlinghouse.

Among the more notable hires this round of investment will facilitate is a lead to manage the joint venture launched earlier this year with Tokyo-based SBI Group to sell Ripple products in Japan.

Within the next six months, Garlinghouse said Ripple will outgrow its San Francisco offices and sign a deal at a new location twice the size.

He concluded:

"We are out of office space."

Thursday, September 15, 2016

One of Bitcoin's Biggest Miners is Launching a Second Pool

 


As if running the third-largest bitcoin mining pool wasn't enough, China-based Bitmain announced the launch of its second mining pool yesterday.

Unlike the other large mining pools, though, the new offering (launched through its subsidiary BTC.com) will be open sourced to its community of users. According to Bitmain, the pool is not meant as a replacement for its popular Antpool platform (which has roughly 13% of the network's market share) but rather to enhance the stability of the bitcoin network.

In interview, Nisthant Sharma, international marketing manager at Bitmain, explained that the goal is to use this software to "promote decentralization of the bitcoin mining network".

Sharma told CoinDesk:

"We hope that this open-source mining pool will set new benchmarks in terms of stability, efficiency, and service for all mining pools."

Sharma explained that, by utilizing the global community, the company believes it can set new technical standards for mining.

Profit, profit

A key focus for the software is on reducing "orphan rates", a metric that has a material impact on miner profitability.

In bitcoin mining, it's not uncommon for two separate miners to find the same block almost at the same time. This results in the creation of two blockchains, but only one can become the longest chain that is accepted as official by the network.

The blockchain that is eliminated is called an orphan, and each time one occurs, some member of the mining network misses out on the revenue that would come from official recognition.

According to analytics provider Blockchain, it's not uncommon for there to be three to five orphan blocks in any given week. Though this is only 0.5% of the total blocks produced every seven days, bitcoin mining has become a low margin business.

To combat this, one of the primary features associated with the pool is a "PoolWatcher" function.

As Bitmain explains it, this looks for signals that another pool has found a block. Rather than continuing to mine on a potential orphan, it will instead, immediately switch to that block.

Sharma explained that Bitmain is spinning up clusters of servers around the world to help with latency of new block discovery. If another miner finds a block, these clusters will transmit that data faster, allowing the pool to switch to the next block.

Though the software is open-source, only users of the BTC.com pool will have access to these server clusters, Sharma said.

Centralization possible

While Bitmain is touting this new software as a way of decentralizing bitcoin mining, it certainly does carry with it the risk that the firm will accumulate an even greater market share with two mining pool services.

Yet, in the short-term, the gain might be neutral. Because it already runs Antpool, it's likely that users might migrate from Antpool over to the new pool, especially in the short-term.

Accoridng to Sharma, this is "not something Bitmain is thinking about". However, the pool's payout mechanism, "pay per share (PPS)", could help it to quickly accumulate market share.

PPS simply means that a miner receives a percentage of the mining reward proportional to the hashrate they contributed to that block. For example, if the miner contributes 1% of the power needed to uncover a mining reward, it would receive 1% of the revenue.

However, a situation could present itself in the future where Antpool keeps its hold and users from other pools, or entirely new miners, join BTC.com'sl.

As mining pools share the reward based on pooled resources, the bigger the pool, the more likely that a reward will be paid out. This results in miners joining larger pools because it maximizes the likelihood that they'll earn something for their efforts.

Because of this, and the 0% fee that Bitmain is charging until the end of the year, BTC.com's pool has the chance to quickly gain market share, a move that could further centralize mining under Bitmain.

Romanian Bitcoin Exchange Shuts Down

 

Romania's first order-book exchange is closing down.

Statements on the BTCXchange website informed users of a possible sale of the service on 18th August, and on 4th September, users were asked to withdraw funds ahead of an expected 12th September shut down.

According to Romanian news source Bihon, it remains unclear whether the exchange, the first of its kind in Romania, is still for sale. Owners originally said they would accept offers on the platform through 16th September.

In past statements, owner Horea Vuscan expressed his hope the exchange would be acquired as he said it was "highly profitable", though he expressed reservations about continuing in the face of the Bitfinex hack and continued worries about the security of bitcoin exchanges.

Vuscan wrote:

"I believe that Romania needs a local exchange but I want to retire in this area of business. In conclusion, in respect of clients and community BTCXchange announce that is for sale."

The decision marks the second time the bitcoin exchange has shut its doors, following a service stoppage in late 2014. However, it's unlikely many customers will be affected by the decision.

Data shows trading volumes on the exchange were low prior to its closure, with the exchange seeing just 19,000 RON (roughly $48,000) in trades over the last seven days

Tuesday, September 13, 2016

EU's Top Cop Launches Digital Currency Working Group

 

Europol, the European Union's top law enforcement agency, has co-founded a new working group dedicated to digital currencies.

The initiative is being co-led by Interpol, the intergovernmental organization focused on law enforcement issues, and the Basel Institute on Governance, a non-profit group focused on financial crimes in the public and private sectors.

The working group, according to an announcement last week, will involve the organization of collaborative workshops and a global network comprised of subject matter experts.

Europol said in a statement:

"Internet technologies become continuously more advanced, and so do the ways in which criminals utilize them for their illicit and illegal activities. Among these technologies, digital currencies are already transforming the criminal underworld."

Europol and Interpol have spent much of the last year collaborating on digital currency issues, a partnership that has seen the two groups organize conferences and training sessions directed at global law enforcement representatives.

More recently, Europol inked a deal with blockchain startup Chainalysis in a bid to expand its capacity for tracking digital currency transactions.

In Race for Bitcoin Mining Profits, Fortune Favors the Old

 

New research has found that unless the price of bitcoin goes up, there will be little room for new miners to compete.

In "Minting Money With Megawatts", released this September, Sveinn Valfells of Flux, Ltd and Jón Helgi Egilsson of the University of Iceland conduct a broad analysis of the health of transaction processing on the open public blockchain, ultimately finding that the network could be headed toward further consolidation and centralization.

Once a hobby for tech-enthusiasts, the aim of the study was to determine the profitability of bitcoin mining following July's halving, a scheduled network change at which the rewards given to bitcoin miners dropped from 25 BTC to 12.5 BTC.

Notably, the researchers found that it is now only possible for new miners to profit when the price of bitcoin is above $600, a figure that was nearly double what it was before the halving.

To determine this figure, the researchers analyzed whether a new mining operation could remain small while still generating profit.

Profitability gap

Because the addition of new hashrate to the network alters how hard it is to generate the reward, the researchers also analyzed how much hashrate could sustainably be added to the network.

In this case, new miners can only add about 16% before difficulty increases would make them unprofitable. This worries the researchers, as this narrow gap for profitability doesn't impact incumbents nearly as much as new miners.

The writers explain that legacy miners have already made a capital investment to build out their mining operation. Therefore, a reduction in revenue only becomes a concern if their operational costs are greater than the amount of money they're bringing in.

They write:

"Existing miners have no reason to turn off their equipment even after the block reward has halved to 12.5 BTC … incumbents enjoy a clear advantage over new entrants."

While a new miner has to worry about the cost of both the new hardware they've purchased as well as their operational costs, legacy miners only need to worry about the latter.

This gives legacy miners the ability to operate in a low-margin environment that might not support a new miner.

Spectre of centralization

In sum, the researchers view this development as problematic because it could ultimately lead to further consolidation by incumbents, which the authors believe could open the network to consolidation and attack.

If new miners can't participate in the network, the larger operations become an increasingly larger part of the total network, creating the opportunity for mining operations to do harm to the network.

Fortunately, the researchers believe that Moore's Law may be able to prevent this problem.

Because electricity is one of the biggest costs for any bitcoin miner, if hardware power efficiency can double every three years, the researchers predict the minimum required price for new entrant profitability could drop to $530.

This increase in power efficiency would also make it possible for the network to support an additional 25% of hashrate before difficulty made new miners unprofitable, rather than the 16% it currently can handle.

Should Moore's Law continue beyond just the next doubling of power efficiency, it appears that there might be a market for new entrants for some time.

Monday, September 12, 2016

Two Big Factors Are Driving Up Bitcoin Prices

 

The price of bitcoin rose close to 10% this week, pushing higher as bullish market sentiment and low liquidity created an ideal environment for gains.

The digital currency enjoyed notable increases during the week, surpassing $600 on Sunday, 4th September, while largely avoiding any significant pullbacks or corrections.

Sentiment is so strong "players are not willing to bet against the rise of BTC/USD," according to Petar Zivkovkski, director of operations for Whaleclub.

He told CoinDesk:

"New short position openings are almost at all-time lows, [which] indicates that the market expects a continued rise."

Tim Enneking, chairman of cryptocurrency investment manager EAM, sees similar forces propelling the current market.

"Sentiment is generally bullish," he added.

Fast start, bullish sentiment

Bitcoin prices had a fast start during the week, opening at $571.68 on 2nd September before surging 4.9% to $599.60 the following day, according to CoinDesk USD Bitcoin Price Index (BPI) data.

While the digital currency tested $600 and failed to break through that resistance, it surpassed that key psychological barrier on Sunday, 4th September, before rising to an intra-day high of $612.39, additional BPI figures reveal.

The digital currency's price surged more than 6% over the weekend of 3rd and 4th September. Market sentiment was strongly bullish during these two days, data provided by leveraged bitcoin trading platform Whaleclub reveals.

Long exposure – as measured by the size of open positions – was 88% on Saturday and 87% on Sunday.

Confidence, which measures the percentage by which a particular day's position sizes were larger than average, registered 86% on 3rd September and 87% on 4th September, according to additional Whaleclub figures.

Additional figures from BFXData reveal that during the period, the value of long bets, as measured by USD margin funding, significantly exceeded the value of short wagers as measured by BTC and LTC margin funding.

Priming the pump

Bitcoin enjoyed these sharp gains and bullish sentiment after the digital currency ranged sideways for several weeks following the hack of exchange Bitfinex, Zivkovkski told CoinDesk.

During this time, trading volume was limited as many market participants took a pause in the aftermath of the Bitfinex hack. Bitcoin transactions totalled 7.82m in the seven days through 8th September, Bitcoinity data revealed.

This period of range-bound trading "lasted for several weeks, during which the market was 'powering up' – behind the scenes, traders were opening positions, betting almost equivalently on a price rise vs a price decline, often on margin," he said.

These substantial speculative bets, coupled with low trading volume, left the market highly susceptible to short and long squeezes. In this environment, a purchase of less than 600 BTC, executed by one or more market participants, was all that was needed to trigger a short squeeze, Zivkovski stated.

Jacob Eliosoff, a cryptocurrency investment fund manager, emphasized that the sharp rally that took place over the weekend required both a notable purchase and short squeeze which forced speculators to close out short positions.

"This weekend's rise was much too sharp to represent just gradual recovery," he told CoinDesk. "A short squeeze can turn a small rise into a big jump, but it can't turn a flatline into a jump."

After bitcoin's sharp gains over the weekend, the digital currency traded between $600 and $615 on 5th, 6th and 7th September, BPI figures reveal.

During this three-day period, the market was 86.3% long on average. Confidence was also high, averaging 84.3% over the three days.

Bitcoin breakout

The digital currency broke out of this malaise on Thursday, 8th September, when it surged more than 2% to a weekly high of $628.75, BPI data show.

Once again, a short squeeze was the likely culprit, stated Zivkovski, emphasizing the price movement took place during a time of low trading volume and did not coincide with any notable news catalysts.

In the near-term, the market could experience further short squeezes, as Zivkovski told CoinDesk on 9th September that "the current market is quite illiquid."

"Existing short positions are being cleared out as price continues to rise. Shorters are closing their positions at a loss and re-opening longs or simply staying out of the market for a while," he said.

Because the market is so illiquid, the situation "places price at the mercy of players with larger firepower"

The Trend Towards Blockchain Privacy: Zero Knowledge Proofs

 


One of the bigger trends in the blockchain world, particularly when it comes to financial services and specifically capital markets operations, has been a need for privacy and confidentiality in the course of daily business. This has meant that blockchain solutions are being designed with this primary need in mind. This has led to all the private blockchain solutions being developed today.

When you build for privacy and confidentiality there are tradeoffs that come with that. Mainly you lose transparency, which was the major feature of the the first blockchain: bitcoin. As originally designed, a blockchain is a transparency machine. In this system, the computers are distributed and no one entity controls the network. Not only this, but anyone can be a validator and anyone can write to or read from the network. Clients and validators can be anonymous and all the data gets stored locally in every node (replication). This makes all transaction data public.

The security of bitcoin is made possible by a verification process in which all participants can individually and autonomously validate transactions. While bitcoin addresses the privacy problem by issuing pseudonymous addresses, it is still possible to find out who's addresses they are through various techniques.

This is the polar opposite of what is happening in the private blockchain world, where decentralization and transparency are not deemed as necessary for many capital markets use cases.

What is important is privacy and confidentiality, latency (speed) and scalability (able to maintain high performance as more nodes are added to the blockchain). Encrypted node-to-node (n2n) transactions mean only the two parties involved in the transaction receive data. In many of these systems there are opt ins for third party nodes (regulators) to be a part of the transaction.

Other systems being developed for similar purposes, which have been written about on this blog, have one designated block generator which collects and validates proposed transactions, periodically batching them together into a new-block proposal. Consensus is provided by a Generator that applies rules (validates) agreed to by the nodes (chain cores) to the block and designated block signers.

In these systems, decentralization is simply not necessary because all the nodes are known parties. In private blockchains the nodes must be known in order to satisfy certain regulatory and compliance requirements. The focus has been on how to preserve privacy and confidentiality while achieving speed, scalability, and network stability. Therefore, there are ways for legal recourse even between parties who don't necessarily trust each other.

Strong, durable cryptographic identification

What are cryptography and encryption?

As noted above with privacy and confidentiality being pivotal, encryption has become a major focus for all blockchains. Many of these solutions are using advanced cryptographic techniques that provide strong mathematically provable guarantees for the privacy of data and transactions.

In a recent blog post titled "A Gentle Reminder About Encryption" by Kathleen Breitman of R3CEV, she succinctly provides a great working definition:

"Encryption refers to the operation of disguising plaintext, information to be concealed. The set of rules to encrypt the text is called the encryption algorithm. The operation of an algorithm depends on the encryption key, or an input to the algorithm with the message. For a user to obtain a message from the output of an algorithm, there must be a decryption algorithm which, when used with a decryption key, reproduces the plaintext."

If this encryption uses ciphertext to decrypt this plaintext, you get homomorphic encryption and this (combined with digital signature techniques) is the basis for the cryptographic techniques which will be discussed in this post. Homomorphic encryption allows for computations to be done on encrypted data without first having to decrypt it. In other words, this technique allows the privacy of the data/transaction to be preserved while computations are performed on it, without revealing that data/transaction. Only those with decrypt keys can access what exactly that data/transaction was.

Homomorphic encryption means that decrypt(encrypt(A) + encrypt(B)) == A+B. This is known as homomorphic under addition.

So a computation performed on the encrypted data when decrypted is equal to a computation performed on the encrypted data.

The key question being asked is: How can you convince a system of a change of state without revealing too much information?

After all, blockchains want to share a (change of) state; not information. On a blockchain, some business process is at state X and now moves to state Y, this needs to be recorded and proved while preserving privacy and not sharing a lot of information. Furthermore, this change of state needs to happen legally, otherwise there is a privacy breach.

Cryptographic techniques like zero knowledge proofs (ZKPs), which use different types of homomorphic encryption, separate:

1) reaching a conclusion on a state of affairs

2) the information needed to reach that state of affairs

3) show that that state is valid.

The rest of this post will discuss how the trend towards privacy has led to cryptographic techniques, some old and some new, being used to encrypt transactions and the data associated with them from everyone except the parties involved. The focus will be on Zero Knowledge Proofs, zk SNARKs, Hawk, confidential signatures, state channels and homomorphic encryption.

The privacy problem on a blockchain is the main gap for deployment for all of the cryptographic solutions talked about below.

Outside of a blockchain, there are examples of homomorphic encryption in practice. CryptDB is an example of system that uses homomorphic encryption and other attribute preserving encryption techniques to query databases securely. It is used in production at Google and Microsoft amongst other places.

It does have limitations though: you have to define the kinds of queries you want ahead of time and it is easy to leak data. CryptDB provides confidentiality for data content and for names of columns and tables; however CryptDB does not hide the overall table structure, the number of rows, the types of columns, or the approximate size of data in bytes. One method CryptDB uses to encrypt each data items is by onioning. This allows each data item to be placed in layers of increasingly stronger encryption.

Confidential signatures

Gregory Maxwell designed a cryptographic tool (CT) to improve the privacy and security of bitcoin-style blockchains. It keeps the amounts transferred visible only to participants in the transaction. CT's make the transaction amounts and balances private on a blockchain through encryption, specifically additively homomorphic encryption. What users can see is is the balances of their own accounts and transactions that they are receiving. Zero knowledge proofs are needed to demonstrate to the blockchain that none of the encrypted outputs contain a negative value.

The problem with Confidential Transactions is that they only allow for very limited proofs as mentioned above. zkSNARKs and Zero Knowledge Proofs (ZKPs) which will be described in detail below, allow you to prove virtually any kinds of transaction validation while keeping all inputs private.

Wednesday, September 7, 2016

Why the Winklevoss Brothers Are Still Waiting for a Bitcoin ETF …

 

The Winklevoss Bitcoin Trust may be inching closer to becoming the first bitcoin ETF listed on a major stock exchange, but that potentially historic date could be further off than some might think.

Announced three years ago by investors Tyler and Cameron Winklevoss, the Winklevoss Bitcoin Trust continues to draw attention, despite delays. As it would trade baskets of shares tied to real bitcoins, retail investors have long seen its approval as a boon for the price of bitcoin and the ecosystem as a whole.

It turns out, though, that even in spite of imminent deadlines that suggest approval may be forthcoming, a real decision could still be months away.

After spending two years trying to get listed on Nasdaq, the effort picked up momentum in June when the Winklevoss brothers filed to move their application to the BATS exchange. Within two weeks of that change, SEC assistant secretary Jill Peterson opened a comment period as part of the approval process.

A 45-day period that started with that filing is set to elapse at the end of this week.

But according to analysts, the publication of the form on the Federal Register didn't kick off a 45 day "clock,"