Month: July 2018

With the recent rise in popularity surrounding applications on the Ethereum network, a somewhat questionable blockchain project has recently been released, it’s called FOMO3D. FOMO3D, deriving its name from the acronym FOMO (fear of missing out), is a self-described “lottery where the house advantage always goes to the players.” The premise of the lottery game revolves around the purchase of ‘keys’ with ETH, some ETH entering into the pot, some being distributed as dividends, and a portion of ETH reserved for future game pot’s and to support the ecosystem. When a key is purchased, additional time is added to the countdown clock that, once it reaches zero, signals the conclusion of the game. The last person to purchase a key becomes the recipient of 48% of the pot’s ETH. Thus, theoretically, games could last as long as people continue to buy keys. As key purchasers’ likely goal of participating in the game is to win the pot outright, early round key buyers are incentivized to participate to garner dividends from subsequent buyers. However, key holders aren’t the only ones collecting interest from FOMO3D transactions. A parallel cryptocurrency exchange, PoWH3D, also receives dividends from key purchases. FOMO3D participants who hold P3D tokens are thus more likely to fair well as they will collect dividends from both their key purchase, and their P3D tokens.

Additionally, upon the purchase of a key, participants choose one of four “teams” with differing ETH distributions into the pot, F3D Players, and P3D Holders. Your team choice determines both the initial allocation of the ETH used to purchase the key, as well as the remaining 50% of the pot left after the game – ETH not going to the community bank fund or game winner. Team Snek boasts the most dividends, team Whale places the most ETH in the pot, team Bull displays a more balanced distribution, and team Bear maximizes the ETH to the current round.

While every detail regarding the game is explained on FOMO3D Wiki, I can’t help but feel that this crypto-gambling ecosystem seems more like a money-making ploy than a legitimate way for participants to earn ETH. Two days after release, it is already the number one decentralized app on DappRadar. In addition to self-identifying as a player-oriented lottery, FOMO3D also claims they are a psychological social experiment in greed. As the game is completely decentralized, and acting as a clear metaphor for an ICO, FOMO3D’s results could provide some interesting information of greed’s role within an unregulated, decentralized platform.

FOMO3D’s close association with POWH3D makes the lottery appear as more of ploy to fuel the exchange and its token with additional liquidity, rather than provide participants the potential to turn a profit.

While the players do garner dividends from additional key purchases or by holding P3D tokens, the payout is about as small as your chance of winning the pot.

Self-motivation will drive participants’ decision making and, as shown through other unregulated and decentralized digital ecosystems, some stability issues may arise. I believe the key to a successful and stable crypto community will come with the implementation of non-intrusive governance and incentive alignment between ecosystem operators and participants. Will FOMO3D’s experiment yield positive results and leave its participants satisfied? 

Or will key-holders walk away feeling as though their fear of missing out got the best of them? I guess we’ll just have to wait to find out. I can’t say that I’d ever consider participating in Fomo3D; However, with a current pot of 21,538.72 ETH, it’ll certainly be fascinating to follow along. 

Matthew Glynn, Sales Associate Intern, Oneiro

The exponential rate at which digital currencies have appreciated since their inception is enough to make any rational investor skeptical. Wall Street institutions and retail investors alike lie in anticipation of the bust that invariably follows any rapid economic boom. Yet, we have all been waiting and watching for some time now – unable to hold our breath any longer for the other shoe to drop.

To be sure, a correction is inevitable. Yet, understanding when this correction will occur and to what degree it will jeopardize the fledgling cryptocurrency industry is only possible once we can identify the catalyst of such a correction. It is common for many contemporary economic sophists to claim that the fiat nature of digital currency is enough to undermine the space entirely. But, anyone who purchases a digital currency knows it is just that – a currency. Just as the US dollar can remain a safe-haven after departing from the gold standard partially in 1933 and completely by 1971, so too can new digital currencies offer a very real store of value without holding underlying assets in reserve. Moreover, one could argue that because many of these digital currencies are not inflationary by nature, their inability to be diluted by a central bank defines them as a store of value far more dependable than any other traditional currency that exists today.

There is, however, one structural problem that cannot be solved with a similar rationalization, and that is extreme volatility. The free market will always find it difficult to trust digital currencies if they remain susceptible to the wild price swings that have plagued the space for as long as it has existed. Instability is the greatest threat to prevailing digital currencies, and it is not a minor one. The turn of the new year brought with it a massive selloff of Bitcoin. Plummeting from record highs of nearly $20,000 per coin down to its current value of just under $7,000, the pioneer cryptocurrency has faced strong international regulatory headwinds which will only appear more reasonable in the public eye as volatility persists. While this drop is undeniably significant, it is not the correction or ‘bust’ that so many “hodlers” believe they have lived to see the other side of. Rather, the widespread adoption of bitcoin futures contracts across a plethora of major traditional exchanges is what spurred a rally in prices; as one would expect, prices fell back to pre-derivative levels within a few short months. This was not a systemic correction, this was a speculative correction.

Although this incredible dip in market price is not the bust that everyone believes it is, the devastating losses faced by investors is telling of what the true catalyst of a systemic correction must be. Until now, digital currency advocates have shrugged off criticisms aimed toward the immense volatility of the space, claiming that the more adopters the space has, the less volatile it will be in the future. Yet, bitcoin is hardly a nascent digital currency. With a market capitalization of over $300 billion at its zenith, investors cannot help but wonder when relative stability will be achieved if ever. To be clear, this is not a new observation. The very impetus behind the creation of many new coins is to solve problems that are manifest throughout the economic framework of existing ones. With each ecosystemic and structural improvement, value flees from imperfect coins toward a higher quality medium of wealth storage and utility.

With this, it becomes clear that digital currency skeptics have been right for the wrong reasons: It will not be the absence of public confidence which undermines the value of existing digital currencies, but rather, a surge of confidence in a new type of digital currency. It is inevitable that a uniquely designed coin will emerge that can systemically mitigate price volatility without sacrificing security, liquidity, or possible appreciation. The emergence of this new digital currency has the potential to invoke a flight to quality, the likes of which might only be comparable to the world’s post-World War II adoption of the US Dollar as a global reserve currency. The correction in the existing crypto space as a result of this new entrant is not only unavoidable, but necessary to support the undeterred growth of a worldwide digital economy.

Kyle R. Chapman, Partner, COSIMO Ventures

One of my favorite readings each week comes from diar.co.  Not sure about their readership levels, but the content is superb.  The brought to light a concern I have had with Bitcoin for a while; mining of Bitcoin is reliant on hardware which makes it a industry model similar to any industry in which scale is the primary factor in success.  Think US railroads in the 1800’s, automobiles from 1920 – 2010, steel manufacturing, etc.  I have been lightly aware of the growing influence of just a few mining firms, but the article below shows the levels of consolidation happening in the Bitcoin Mining industry.  It would not be a far fetched thought to believe the lowest cost producers have been working to drop the price of Bitcoin to being marginally incentivizing to those miners in an effort to force out smaller players and further consolidate power.  I suspect that Satoshi’s original concept did not end up with a oligopoly running the Bitcoin network, bet we are heading there.  Bitcoin is a great invention of peer-to-peer, near frictionless transactions between unknown third parties, but the world needs better.  

Bitmain Consolidates Hashing Power Over Mining Pools

Last week, mining pools operated by Bitmain, a Chinese company that controls majority of ASIC miner production, controlled a combined hashrate of more than 42%. Of the two pools run by the outfit, BTC.com mined more than 26% while Antpool mined approximately 16% of Bitcoin blocks in the last week. Bitmain also operates ConnectBTC, its third mining pool, but it only mined less than 0.2%.

SILENT INVESTOR?…

It’s worth noting that Bitmain led the Series A funding round in ViaBTC, which operates the fifth largest pool with approximately 9% of the hashrate. ViaBTC asserts that the company is 100% independent and that Bitmain is only the lead investor.

Bitmain’s Bitcoin mining pools centralization is now a mere 8% to the critical level of 50%, which is a serious concern because it potentially threatens Bitcoin’s immutability. It could give one entity a certain degree of control over the whole network such as blocking or reversing transactions. Bitmain doesn’t disclose what percentage of hashrate out of its pools it physically operates but it controls the block templates for the entire pool nonetheless. If Bitmain attempted to misuse its hashrate, it can be expected that the individual miners in these pools would quickly switch to different pools. But then again, it is not exactly clear what is the actual percentage of hashrate that users in these pools control.

In 2014, GHASH.io, a now defunct mining pool, briefly exceeded the 50% threshold but voluntarily decreased its hashrate to under 40% and promised that it will not exceed 40% in the future. Antpool, on the other hand, just announced that it will temporarily eliminate fees from 4% to 0%, which would spurn on further adoption.

INCOMING SOLUTION?

Matt Corallo, Bitcoin Core developer, is working to develop an alternative to the currently most used mining protocol Stratum, which would allow individual miners to use their own block templates instead of having to use the block templates chosen by the pool. His mining protocol dubbed BetterHash would help decentralize Bitcoin mining.

As Diar noted in June, the daily estimated profits from Bitcoin mining have decreased by more than 80% in 2018 (Diar, 4 June). According to Bernstein Research, Bitmain controls 70-80% of the Bitcoin mining hardware market, which only furthers the centralization problem. Bitmain has a very significant hardware cost advantage compared to all the other pools as well as priority access to the newest hardware. If Bitcoin mining profitability continues to decrease, it can open the doors for small miners to switch to more profitable coins, which would effectively lead to an increase in Bitmain’s pools hashrates.

Steve Leahy, Managing Director, ntrd