Crypto-digest 05.03 — Goldman Sachs to begin Bitcoin futures trading within weeks; Enterprise Ethereum Alliance is back – and it’s got a roadmap to prove it; Bitcoin bulls seek breakout to $10K or higher; Coinbase discloses corporate data in response to NY crypto inquiry; BlackRock staffers depart to start blockchain investment fund; The Blockchain Data Problem is bigger than you think.
Goldman Sachs to begin Bitcoin futures trading within weeks
Investment banking giant Goldman Sachs will use its own money to trade bitcoin futures on behalf of its clients, according to the New York Times.
The Times reported Wednesday that while the exact launch date of the new trading operation is not yet set, the move came after the bank’s board of directors signed off on the initiative. Goldman is also set to “create its own, more flexible version of a future, known as a non-deliverable forward, which it will offer to clients,” according to the report.
Goldman executive Rana Yared said the decision resulted from a growing number of inquiries from clients that indicated interest in holding bitcoin as an alternative asset.
“It resonates with us when a client says, ‘I want to hold bitcoin or bitcoin futures because I think it is an alternate store of value,'” she told the Times.
The investment bank has hired its first “digital asset” trader, Justin Schmidt, to handle the daily operation. Schmidt previously worked as a trader at hedge fund Seven Eight Capital before leaving last year to trade cryptocurrencies.
The news reflects the growing involvement of Goldman in the crypto-market, as CEO Lloyd Blankfein has previously said that the investment bank was clearing bitcoin futures for its clients. Per the Times, any deeper action – including the direct handling of bitcoin – will only come following approval from U.S. regulators.
And according to Yared, Goldman officials have taken a cautious approach throughout the process.
“For almost every person involved, there has been personal skepticism brought to the table,” Yared was quoted as saying, adding:
“It is not a new risk that we don’t understand. It is just a heightened risk that we need to be extra aware of here.”
Enterprise Ethereum Alliance is back – and it’s got a roadmap to prove it
Since its formation nearly a year and a half ago, it’s safe to say that the Enterprise Ethereum Alliance (EEA) has been quiet.
Apart from a steady stream of new members, there has been a lull of live projects, one that has led some to theorize the consortium might not deliver on standards for enterprise use of the world’s second-largest blockchain. In a Medium post last month, for instance, the CTO of competing DLT consortium, R3, even went so far as to stake such a claim, contending that the lack of progress proves ethereum is unsuitable for enterprise.
But if competitors were eager to send the EEA to an early grave, Wednesday might mark the consortium’s rise from the dead, as the company has revealed the release of a new guide outlining its open standards work.
While this is just the first step in making public work that could make enterprise blockchains based on ethereum interoperate with each other, it comes as businesses are broadly beginning to acknowledge it’s time to move any proofs-of-concept toward viable blockchain products.
Case in point, the consortium itself has swelled to more than 500 firms – ranging from global banks such as BBVA, Credit Suisse and JPMorgan to blockchain startups and traditional tech providers like Microsoft.
Yet, Ron Resnick, the EEA’s first executive director who was hired in January, used this diverse membership to argue that reaching a standards reference model in a year and a half is comparatively fast going.
As the former president of WiMAX Forum, which was created to promote interoperability between the wireless communication standards developed by the IEEE Standards Association, Resnick has been through the gamut when it comes to standards in the telco space.
He told CoinDesk:
“If you look at other standards bodies it can take about three years. In fact, at the IEEE you get four years to deliver something.”
Plus, he continued, standards developing is a slow and methodical process (one that many crypto entrepreneurs, who are used to the fast pace of the industry’s permissionless innovation, have shied away from).
But it’s one, that if done right, will offer plenty of benefits.
“All the ethereum client companies see the need to agree on these building blocks and components and how they talk to each other, because if we don’t, then we don’t have a way to compete against the proprietary solutions,” Resnik said.
Still, the EEA is “working aggressively” to deliver on its roadmap, with the whole process coming to fruition before the year’s end, Resnick said.
As a first step, the architecture stack EEA has published comprises five layers. From the bottom up, there’s the base-level peer-to-peer network protocol layer, and on top of that is the core blockchain layer, which organizes consensus, transaction execution and data storage (on-chain and off-chain).
Sitting on top of that is a layer devoted to privacy and scaling, again in an on-chain versus off-chain capacity. Then a tooling layer handles things like permissioning credentials and how oracles interact; topmost is the application layer.
Today’s publication of the enterprise ethereum architecture stack will be followed “very shortly” by the spec, Resnick said. That, in turn, will be followed by a testnet and after that comes the establishment of a certification program.
But enterprises also seem interested in using public blockchains, so the EEA is making sure a general confluence happens between the public ethereum network and the private enterprise blockchain work.
“They have seen our stack, they know what’s needed for enterprise,” he said. “As this grows, even if it’s a private network, that network can actually connect to the [public ethereum] mainnet – which a lot of folks want to do.”
Referring to specific use cases such as clearing and settlement in financial services, Resnick said the foundation recognizes the needs of enterprises and will implement and deliver work contributed by members.
And the consortium hopes to return the favor. At a recent talk at London’s Blockchain Expo, EEA founding board member Jeremy Millar said it’s likely some EEA features will be taken back into the code for the public ethereum blockchain in the form of ethereum improvement proposals (EIPs).
Still, a key challenge for EEA is the fact that ethereum was designed for public use, and so fully broadcasts transactions to all nodes in the blockchain. This means the tech has to be modified for much of the privacy-centric enterprise world – as opposed to custom-built DLTs like Corda or Fabric.
This was one of the main reasons R3’s Brown claimed ethereum and enterprises can’t mix.
“Ethereum works on the basis of sharing all data with all parties,” he wrote, calling a public network the “wrong architecture for business.”
And Resnick acknowledged that “the biggest debate I’ve seen internally” within the EEA has been about how to deal with privacy. Discussions are ongoing about how much data needs to be communicated in particular cases and the extent to which privacy will be mandated, he said.
What’s more, the European Union’s General Data Protection Regulation, which aims to give better control to EU residents over their personal data and so limits what businesses can do with that data, further complicates matters.
“I suspect that you are going to see multiple flavors of how privacy is implemented,” Resnick said. “I don’t think that’s a problem. But I think it’s still open-ended and not crystal clear, even by the regulators, with things like GDPR is just coming out.”
To address the problem, the EEA architecture stack’s privacy layer will manage mechanisms to choose which data can be broadcast to the chain and which transactions can take place within a trusted execution environment.
“There are different ways you can do it: is it going to be on the mainnet, is it going to be in off-chain – or a combination of both?” said Resnick. “How much data are we going to share and will have visibility, even if it’s encrypted?”
On the subject of privacy, JPMorgan Chase’s Quorum, which was last year described as the jewel in the EEA crown, blazed something of a trail by incorporating zero-knowledge proofs into its banking blockchain design. Now the word on the street is that Quorum may be spun out of JPM, and its blockchain lead Amber Baldet has since left the bank to join a yet-to-named startup.
However, Resnick confirmed that technology developed by the team behind zcash will continue to play a part in what the EEA is doing and that JPM is actively engaged in the stack.
But he was quick to add there is no favoritism in the EEA.
“I can tell you that in my world every member gets treated equally. We treat JP Morgan’s Quorum as equal to BlockApps and Clearmatics etc,” Resnick said, concluding:
“If members are not working, I’ll call them up and give them a hard time. If you don’t participate here, then when the spec is published and if it doesn’t have what you want in it, don’t blame us.”
Bitcoin bulls seek breakout to $10K or higher
Bitcoin (BTC) has been trading in a narrowing price range over the past week, but a bullish breakout is looking likely, the technical charts suggest.
The cryptocurrency created a bearish outside-day candle last Wednesday, signaling the rally from the low of $6,425 had run out of steam. However, the bitcoin bulls ensured there was no negative follow-through on Thursday and defended $8,800 over the weekend.
While a convincing break above $9,500 has remained elusive so far, the charts suggest the bulls have the stronger hand going forward.
The chart above shows that bitcoin is trading in a narrowing price range with higher lows and lower highs, forming a bull pennant pattern.
A bullish breakout would mean the rally from the low of $6,425 has resumed and could open the doors to $12,000 (target as per the measured height method – i.e. length of the flagpole added to breakout price).
While that target looks a little far-fetched, BTC could rally to $10,000 on confirmation of a bull-pennant breakout (4-hour close above pennant resistance of $9,400).
On the other hand, a downside break would add credence to last Wednesday’s bearish outside-day candle and could yield a pullback to $8,490 (38.2 percent Fibonacci retracement of the rally from $6,425 to $9,767.4).
That said, the odds of a bull-pennant breakout are high as indicated by the price action in the daily chart below.
The bears failed to capitalize on bullish exhaustion last week, as indicated by the bearish outside-day candle. This is evident from the lack of bearish follow-through on Thursday and higher lows pattern – $8,652 (April 26 low), $8,750 (April 28 low) and $8,818 (May 1 low).
Further, the gradually ascending 5-day moving average (MA) and 10-day MA continue to favor the bulls.
As of writing, BTC is changing hands at $9,120 on Bitfinex, representing marginal gains compared to the previous day’s close (as per UTC) of $9,066.
- Bitcoin will likely witness a bull-pennant breakout and rise towards $9,975 (200-day MA) and $10,000 (psychological hurdle).
- A daily close (as per UTC) above $10,000 could bring a stronger rally to $11,306 (38.2 percent Fibonacci retracement of the sell-off from $19,891 to $6,000).
- A downside break of the pennant pattern would weaken the bulls and expose support lined up at $8,490 and $8,104 (50-day MA).
- Only a daily close below $7,823 (April 17 low) would signal bear revival.
Coinbase discloses corporate data in response to NY crypto inquiry
Coinbase, the U.S.-based cryptocurrency exchange startup, has publicly shared part of its response to New York Attorney General Eric Schneiderman’s ongoing inquiry.
“We applaud the [Office of the Attorney General] for taking action to bring further transparency to the virtual currency markets,” Coinbase’s chief legal and risk officer Mike Lempres wrote in a five-page letter.
Schneiderman’s office launched a “fact-finding inquiry” into cryptocurrency exchanges in April, sending a detailed questionnaire to 13 firms, including Coinbase. The inquiry seeks a wide range of information about exchanges’ operations, their leadership, funding, terms of service, privacy protocols, relationships with other financial institutions and use of trading “bots.”
In the public version of Coinbase’s reply, Lempres addresses the assets kept on Coinbase’s platform ($150 billion in total), the firm’s funding ($225 million to date), its financial position (“a profitable and self-sustaining business”), and its personnel levels (over 300 employees, 1,000 total when you factor in contractors).
The letter describes Coinbase’s cooperation with law enforcement and regulatory agencies across the globe, its “state of the art” cybersecurity program, and its recent systems upgrades, which Lempres says enabled the platform to achieve 99.99% uptime in April.
It also says Coinbase is a federally regulated money service business and has been granted licenses by regulatory authorities in 31 states, including New York’s BitLicense. The letter notes that this controversial license involves “considerable regulatory oversight.”
Yet Coinbase’s full response to Schneiderman’s request will likely remain out of the public eye, per a request from the startup.
Lempres asked for “confidential treatment” for the full response, which the exchange is transmitting “via an encrypted end-to-end secure file exchange service consistent with our security protocol.”
Rachael Horowitz, Coinbase’s vice president of communications, later told CoinDesk via email:
“That full response has a bunch of highly confidential information that we are unable to share publicly. Our aim is to be as transparent as we can in responding to this action publicly so we shared the cover letter.”
Most exchanges CoinDesk contacted welcomed the New York Attorney General’s inquiry, but Kraken, an exchange that left New York due to the BitLicense, pointedly refused to cooperate.
BlackRock staffers depart to start blockchain investment fund
The steady drumbeat of departures from traditional finance to the blockchain industry continues.
On Wednesday, Financial News reported that three members of BlackRock’s institutional clients team in London have jumped ship in order to launch their own fund, Eterna Capital. The fund will focus exclusively on blockchain-based solutions and derive its inspiration from the UN’s Sustainable Development Goals.
Eterna aims to raise €20 million and will be led by Andrea Bonaceto, who founded HiredGrad in 2014 after earning a finance degree at Imperial College London. The other three founding partners all come from BlackRock: Nassim Olive will serve as chief economist and COO, Asim Ahmad as head of portfolio management, and Mattia Mrvosevic as head of research.
Ahmad explained the decision to leave BlackRock and start a blockchain-focused fund in an interview on Skype, telling CoinDesk:
“BlackRock, they pay well, it’s a great place to learn … [but] the opportunity is just too big to miss.”
That kind of thinking appears to be gaining traction on Wall Street and in the City of London, where people are leaving traditional finance to join or launch ventures focused on cryptocurrencies or blockchain technology. April saw a Goldman Sachs executive leave to join the wallet and data provider Blockchain, as well as Lewis Ranieri – who pioneered the sale of mortgage-backed securities at Salomon Brothers – partner with the blockchain startup Symbiont.
Other notable ex-Wall Streeters focusing on blockchain technology include Blythe Masters, the former JPMorgan Chase exec who founded Digital Asset Holdings.
Unlike the veterans named above, Eterna Capital’s founders were at relatively early stages in their careers in finance. Asked why he left BlackRock, Asim mentioned the ability “to shape the industry.”
And despite the risk involved in leaving, he said, “those kinds of opportunities make someone who’s in the institutional world think.”
The Blockchain Data Problem is bigger than you think
A straightforward data point – the total supply of bitcoin hit 17 million.
But as with most things in crypto, it wasn’t so simple.
Every 10 minutes or so, miners find a block of transactions and the network adds 12.5 new bitcoin to the total supply as a reward for the finders. And each reward has been logged on the blockchain since bitcoin launched in early 2009.
As such, it seemed like a number – a milestone – the industry could trust.
But as some celebrated once the mark was hit on bitcoin data provider Blockchain’s website, others took to Twitter to rain on their parade.
Jameson Lopp, Casa engineer and the creator of Satoshi.info, another public-facing bitcoin data site, tweeted:
“Today I’ve learned that a lot of data sources are incorrectly reporting the total bitcoin supply. We haven’t actually hit 17 million BTC yet.”
Lopp’s contention was that Blockchain.info, one of the most popular and highly-regarded sources for blockchain network data, among others, had not accounted for instances in which bitcoin miners, due to bugs and other causes, did not claim their full block reward.
Unfortunately, these discrepancies in the total bitcoin supply metric are not the exception, but part of a larger problem that stems from the “opaque” methodologies these blockchain data analysis providers use, according to Greg Cipolaro, the CEO of Digital Asset Research (DAR), a firm that provides blockchain analysis to clients.
As such, DAR went on a mission to figure out Blockchain’s methods for what it calls “one of the longest standing mysteries in the cryptocurrency community” – bitcoin’s estimated transaction value. In the company’s report on the subject, published recently, DAR said Blockchain over-estimated transaction values from October to February 2017 and has mostly underestimated them since then.
Executives from Blockchain were not available for interview before press time.
But it’s not only Blockchain. Cipolaro cited CoinMarketCap’s January removal (without warning) of South Korean exchange data from its price index. Since cryptocurrency prices on South Korean exchanges have tended to be higher, the eviction made it appear that the crypto markets were crashing.
Panic selling ensued, setting off what Cipolaro called “a mini-flash crash.”
In fairness, though, price indices always involve subjective decisions. That is true not only of cryptocurrencies but also the stock market. Yet without insight into how price and other metrics are arrived at, the cryptocurrency community could suffer. Accurate data is extremely important for investors, traders, users, developers, academics, journalists – basically everyone.
A multi-layer problem
Still, many people who depend on public blockchain data don’t realize how flawed some of this data is.
Offering a grim outlook on the broad state of blockchain analysis today, Stefan Richter, a computer scientist who co-founded data provider BitcoinPrivacy, told CoinDesk:
“There are, of course, software bugs in probably every explorer around.”
And Cipolaro echoed that, saying, “This is not something you would notice unless you spent your days looking at it.”
Luckily, some industry enthusiasts have noticed.
Lopp, for one, is a cryptocurrency data hound. He pointed to bitcoin node count, a figure often cited as a measure of the network’s decentralization and health, as a particularly finicky metric.
“I often hear folks say that there are only 10,000 bitcoin nodes,” Lopp said. But the source of that figure, Bitnodes, “only counts reachable nodes that accept incoming connections.”
Addy Yeow, the creator of Bitnodes, confirmed that the site only counts “listening” nodes.
As such, the total number of nodes could be far higher, according to both Lopp. Indeed, one estimate puts listening and non-listening nodes at nearly 140,000.
And while Yeow agrees, he cautions that adding non-listening nodes to the metric would require making major assumptions. He explained that data sources that count non-listening nodes are actually taking part in a guessing game. Nodes that aren’t listening could still be connected, but behind a firewall, for example. Alternatively, they could have changed IP addresses, or the could have disconnected entirely.
The analysis providers that take into account non-listening nodes use a formula which takes into account the number of days nodes have been non-listening in an effort to count them, but the more unseen-but-connected nodes they capture, the more disconnected nodes they erroneously include.
Due to the issues with public data sets, many blockchain data professionals avoid using them and instead use data they calculate internally whenever possible.
Chainalysis, a firm that analyzes blockchain data for clients including the U.S. Internal Revenue Service (IRS), is certainly skeptical. Kimberley Grauer, Chainalysis’ chief economist, said she prefers to use internal data because, “I know where the errors are; I know where the vulnerabilities are.” DAR’s Cipolaro echoed that, telling CoinDesk the company runs its own code, gleaning data from its own bitcoin node.
Still, despite their shortcomings, Cipolaro has high praise for the free sites that make bitcoin data available to the public.
“They provide a good source of high-quality information,” he said.
And it’s obvious these companies are trying. When a bug in Blockchain’s web service made it appear (incorrectly) that bitcoin founder Satoshi Nakamoto had moved some coins, the company fixed the problem.
Certain issues should be easy to fix. Grauer pointed out that block explorers often neglect to note time zones, and they don’t all use the same one. While that’s not strictly wrong, it causes confusion.
“Just compare blockchain.info to btc.com!” Grauer said. (We did: block 520672 was either mined at 23:18 on April 30 or 03:18 on May 1. There’s no hint of what time zone either site is using.)
Other data sets won’t be as easy to clean up. While the bitcoin blockchain may be fully public for all to see, the complicated way in which transactions are performed means measuring their value can be quite the challenge. Even DAR does not claim its new method is perfectly accurate.
“This will not likely be the last improvement we make,” the company said in its report.
For the time being, the community will need to remember the old Russian proverb, repurposed by cypherpunks:
“Don’t trust, verify.”