Crypto-digest 05.09: Bitcoin lightning payments are slowly becoming less reckless; Ex-Trump advisor predicts ‘global cryptocurrency’; Facebook’s David Marcus to lead new blockchain research unit; Winklevoss brothers win crypto exchange patent; Security or currency? Jury to decide in ICO fraud case; The first version of Ethereum’s casper upgrade has been published.
Bitcoin lightning payments are slowly becoming less reckless
You’re running a full bitcoin node, know Linux and have decent command line skills. Okay? Cool, go ahead and spin up a Docker instance.
If that sounds intimidating, you’re not alone.
But as recently as January, using the lightning network, a layer-two technology for scaling bitcoin, on “mainnet” – ie, with real money – called for these rarified levels of technical expertise. Not to mention a strong stomach – bugs lurked in early implementations, threatening to part users from their funds (early adopters boasted of their prowess with the slogan #reckless).
Luckily, the lightning network, which pushes transactions into off-chain payment channels, allowing the cryptocurrency to be received without waiting for a block to be mined or paying the associated miner’s fees, has moved ahead by leaps and bounds in the past few months.
As such, hopes are running high.
For instance, ACINQ, the company behind the “eclair” lightning implementation, unveiled an Android wallet app at the beginning of April that can be used to send mainnet lightning payments. But the app can’t receive payments yet.
And Lightning Labs, the company behind the “lnd” implementation of the lightning network, recently published a blog post envisioning non-techy end-user Carol buying a pair of socks using lightning as easily as if she were swiping a credit card.
In short, lightning promises to bring bitcoin back to the days when it could be used to buy a pizza.
Indeed, the newest beta version of Lightning Labs’ lnd is, in fact, ready for mainnet use, but the company recently tweeted, “we recommend that users experiment with only small amounts (#craefulgang #craefulgang #craefulgang)!” playing off a joke in John Oliver’s recent bit about cryptocurrency.
To minimize the risk for users, Lightning Labs has not released a mobile version, and the desktop app is still restricted to “testnet” – that is, fake money. Same with the lnd wallet for iOS called Zap; the lightning wallet, HTLC.me, developed by well-known developer Alex Bosworth; and another iOS wallet for lightning, called CoinClip, released by developer Kenneth Perry, aka thothonegan.
Still, the frenzy of developer activity on lightning network will continue to push its rapid development, but for noobs – whom polite society calls “inexperienced users” – it’s still a waiting game.
Although Jack Mallers, the developer behind a testnet lnd wallet for iOS called Zap, isn’t getting discouraged. With optimism, he told CoinDesk, lightning will soon be good enough for more non-technical users, adding:
“One day it will be good enough for exchanges, one day it will be good enough for Amazon.”
With that said, though, there’s still no official launch date for a lightning network application that everyday people can use.
“We’re so used to roadmaps of products where there’s a deadline,” Mallers continued, but lightning is “a protocol and not a product so there’s not a ship date.”
Watchtowers and submarines?
Would-be lightning wallet users will have to wait until several highly technical features – with strange names – are ironed out.
One of the most important, Mallers said, is “watchtowers.”
In the way that the lightning network’s smart contracts are designed, it is possible for one user of a channel to steal another user’s funds. While it is risky – since if the victim logs on before a given amount of time has passed and notices, they can then punish the would-be thief by taking all their funds in the channel – Lightning Labs is going a step further, building watchtowers.
These all-seeing nodes will watch the network and punish anyone who attempts to steal their counterparty’s bitcoin, in exchange for a small fee.
Beyond that basic guarantee of safety, there are other improvements a wallet app would need to make before it’s ready for everyday use.
For instance, several developers are working on a mechanism called “splicing,” which would allow a user that wants to send more bitcoin than they have available in their channel to bring additional funds into the channel to make the payment. This mechanism is also being developed by Lightning Labs to enable bitcoin users without a lightning node to receive lightning-based payments.
Then there are features that might not be totally necessary, but would certainly be nifty.
Bosworth, for instance, is working on a feature called “submarine swaps,” a version of atomic swaps whereby one side of the swap is being done on-chain and one side of the swap done off-chain.
With the use the lightning network’s ability to lock up funds in a smart contract, lightning network users could theoretically swap between bitcoin and litecoin, for example.
The technology could, Bosworth believes, could enable lightning use on decentralized exchanges as well, since even though users need a “swap provider,” that provider “can’t take your altcoins without giving you the bitcoin back because of that lock,” Bosworth told CoinDesk.
The ‘usability challenge’
As important as this technical plumbing is, though, some argue that these are just the tip of the iceberg when compared to outstanding user experience issues.
“Lightning has a ton of challenges ahead of it. I don’t want to be too negative. It’s amazing stuff,” said The Hebrew University assistant professor Aviv Zohar, adding:
“But there’s this huge gap between what’s doable and what’s usable: the usability challenge.”
Case in point, Zohar thinks there are a number of problems with the lightning network user experience that don’t have solutions yet.
For instance, when users create a channel, they need a certain number of confirmations to make sure its been accepted, and as such, the user needs to keep monitoring the channel. And while he admits the watchtower concept will improve this, that feature will likely take some time to be built into a sleek UX.
Plus, Zohar continued, “If you drop a phone in the toilet or something, what happens with your lightning channel?”
An edge case, perhaps, but overall, lightning’s user interfaces are far worse even than bitcoin’s – though admittedly bitcoin’s had far more time – and even bitcoin’s user experience still isn’t that intuitive.
That will likely continue to be the case, Zohar believes, since there just aren’t a whole lot of people working on UX for cryptocurrency protocols and technologies.
Yet some, like Igor Cota, have noticed the problem and are working on it. For his part, Cota is working on a lightning wallet called Presto that would enable near-field communication (NFC) – the technology behind contactless payments which allow users to merely tap their mobile devices to payment terminals to initiate transactions.
Speaking to CoinDesk about the benefits of simple, seamless lightning use, Cota said:
“I strongly believe that a focus on UX and general ease of use are what is going to bring lightning (and bitcoin) to mainstream.”
Ex-Trump advisor predicts ‘global cryptocurrency’
Gary Cohn, the former Goldman Sachs executive who led Donald Trump’s National Economic Council until last month, weighed in on bitcoin and blockchain technology on Tuesday.
“I’m not a big believer in bitcoin,” Cohn told CNBC’s Bob Pisani in an interview. “I am a believer in blockchain technology.”
He then made a bold prediction about the future of the tech, telling the network:
“I do think we will have a global cryptocurrency at some point.”
Cohn clarified that this global cryptocurrency would not be “based on mining costs and costs of electricity and things like that,” a reference to the power-hungry mechanism that bitcoin and other blockchains utilize.
“It will be a more easily understood cryptocurrency that will probably have some blockchain technology behind it, but it will be much more easily understood how it’s created and how it moves and how people can use it,” he remarked.
Cohn was prompted by a question about Goldman Sachs’ decision, revealed last week, to launch a bitcoin futures trading desk.
“Look, they can do whatever they want. They can do whatever’s in their shareholders’ best interest,” Cohn replied.
Cohn became Goldman Sachs’ president and chief operating officer in 2006. He remained in the post through the aftermath of the financial crisis, which his firm was widely seen as contributing to through its mortgage-backed securities business.
When Trump took office in January 2017, Cohn left Goldman to serve as director of the National Economic Council. In March 2018 it was reported that he would resign, a decision that likely reflected his opposition to the Trump administration’s proposed tariffs. Cohn left the post on April 2.
Facebook’s David Marcus to lead new blockchain research unit
Social media giant Facebook is launching a team dedicated to exploring blockchain technology.
The initiative will be spearheaded David Marcus, who has served as the company’s vice president for its Messenger app division. Marcus is a former president of PayPal.
“After nearly four unbelievably rewarding years leading Messenger, I have decided it was time for me to take on a new challenge. I’m setting up a small group to explore how to best leverage blockchain across Facebook, starting from scratch,” Marcus wrote in a post on his Facebook page on Tuesday.
A report from Recode indicated that while the team will have fewer than a dozen people, it will feature engineering and product staff from Facebook’s Instagram unit as well.
Although it remains unknown at this stage the exact work to be carried out by the new team, the news marks a notable move by the social media giant.
It also follows a remark made by the ex-PayPal president – who joined the board of directors of crypto exchange Coinbase last year – that Facebook Messenger is open to the idea of embracing cryptocurrency payments once the blockchain community can “fix all the issues.”
The formation of Facebook’s new blockchain team follows a platform-wide ban on cryptocurrency-related ads, with the social media company cciting concerns that users had been exposed to fraudulent ICOs and cryptocurrency schemes.
Winklevoss brothers win crypto exchange patent
Winklevoss IP, the company owned by Gemini founders Cameron and Tyler Winklevoss, has been awarded with a patent claim that aims to settle exchange traded products (ETPs) holding cryptocurrencies.
The company outlined a system that can execute transactions for ETPs holding cryptocurrencies “such as bitcoins … ripple, dogecoins … ether” as well as BBQCoin, among others, according to patent published by the U.S. Patent and Trademark Office on Tuesday. The company first filed the application in December of last year.
ETPs, which include exchange-traded-funds (ETF), are a type of security whose prices derive from other investment instruments they are tied to, which in the Winklevoss case, would be cryptocurrencies.
The patent reward is notable as it provides a glimpse into the Winklevoss brothers’ continuing efforts to push forward the trading of cryptocurrency-related ETFs after having met hurdles from U.S. regulators.
As previously reported by CoinDesk, the U.S. Securities and Exchange Commission (SEC) has rejected the brothers’ last bid in March 2017 that sought to list a bitcoin-tied ETF on the Bats BZX Exchange, citing risk associated with the trading and regulatory uncertainty.
Currently, the SEC has yet to green-light any bitcoin-related ETFs on exchanges. And in January this year, several firms that were proposing a rule change to the SEC had also withdrawn their filings per requirement by the securities regulator.
Today’s patent reward also comes just a month after the Winklevoss IP won another patent claim for strengthening cryptocurrencies’ transaction security that could be used in the Gemini exchange, as previously reported by CoinDesk.
Security or currency? Jury to decide in ICO fraud case
A jury will decide whether tokens issued through two allegedly fraudulent initial coin offerings (ICOs) count as securities, a U.S. district court judge said Tuesday.
Businessman Maksim Zaslavskiy is accused of violating anti-fraud and registration provisions of federal securities laws after launching two token sales that officials say defrauded investors.
He pled not guilty in early December to the charges, before moving to dismiss the cases brought by the Securities and Exchange Commission (SEC) and Department of Justice, arguing that the token sales did not constitute securities offerings. He further argued that he did not know he was in violation of the law.
In response, the DOJ and SEC claimed that Zaslavskiy knew his actions were unlawful, if for no other reason than because the SEC contacted him prior to the DRCW token sale. Furthermore, the agencies claimed that both the REcoin and DRCW tokens passed the Howey Test, meaning they fit the legal definition of securities offerings.
Zaslavskiy’s trial is potentially precedent-setting, considering that it hinges on a key question: whether his issuance of tokens across two ICOs constituted illegal securities offerings.
But the answer to that question, Tuesday’s hearing made clear, could take months to develop. Judge Raymond Dearie didn’t rule directly on the question of whether the tokens involved are securities, kicking that question to the trial, which is tentatively set to begin as early as January 2019.
Jury members will decide “whether this is a currency or a security,” Dearie remarked.
Vagueness argument continued
Yet Zaslavskiy’s legal team is continuing to push the argument that the rules, as they exist today, are too vague.
In remarks during the hearing, Zaslavskiy’s legal team accused the U.S. government of sending mixed signals on how ICO tokens are to be classified, with one attorney stating that “the government has ruled that virtual currencies are commodities and now the government is saying they’re securities … the SEC wants to regulate something.”
“The fact that on the same floor, in the same court in Brooklyn, New York, the government is saying different things based on which agency is bringing the charge, that brings vagueness,” the attorney added.
For its part, the government put forward the idea that the two tokens in question can’t be considered currencies as they never actually existed. They were only promised to would-be investors.
“This wasn’t a currency at this point, in time maybe. Maybe at some point down the road, in 10 years, but at this time it is not a currency,” one prosecutor said. And as the argument was later framed: “Defense is trying to group all cryptocurrencies into one big ball of wax [but] you can’t group all cryptocurrencies together.”
While the SEC has not issued formal guidance on ICOs, chairman Jay Clayton has repeatedly stated in public appearances his belief that every ICO token he’s seen is a security.
In a now somewhat-famous statement during an event at Princeton University in April, Clayton used an analogy to explain how he viewed token sales.
“If I have a laundry token for washing my clothes, that’s not a security,” he remarked. “But if I have a set of 10 laundry tokens and the laundromats are to be developed and those are offered to me as something I can use for the future and I’m buying them because I can sell them to next year’s incoming class, that’s a security.”
The first version of Ethereum’s casper upgrade has been published
new version of the code behind Casper, a planned change to the way the ethereum network reaches consensus, has been published for wider scrutiny by auditors and client developers.
Danny Ryan, the developer behind Casper FFG, posted a version 0.1.0 “first release” of the code to GitHub Tuesday, noting, “v0.1.0 marks us more clearly tagging releases to help clients and external auditors more easily track the contract and changes.”
(Short for “Friendly Finality Gadget,” FFG is the first iteration of Casper, and will possibly be followed by others.)
Ryan followed up with a reply to a Reddit post on the update, in which he wrote:
“More than just the research team is using the contract now — auditors, client devs, etc — so we wanted to start issuing clearer versioning and changelogs to help everyone stay organized.”
The move signals that momentum is building behind the protocol change, as ethereum software clients can begin scripting the software into their individual coding languages and testing the software.
Vitalik Buterin, who created ethereum, addressed the Casper upgrade at a conference in Toronto last week, calling it “hopefully one of the more joyous experiences in ethereum in a fairly short time.”
Once implemented, Casper FFG will alter ethereum’s software so that updating the blockchain involves a combination of proof-of-work – the electricity-intensive “mining” familiar from bitcoin – and proof-of-stake. The latter employs validators to update the ledger through a voting system within which users, sometimes called stakers, put down deposits of ether, which they risk losing if they attempt to cheat.
In its initial stages, Casper will retain ethereum’s current proof-of-work protocol to do most of the heavy lifting, using proof of stake to validate “checkpoints” periodically. Because the network can only handle so many validating nodes, the minimum deposit will start off at 1,500 ether, or $1.1 million at the current exchange rate.
The plan is eventually to move to a fully proof-of-stake system and to lower the minimum stake, but there is no definite timeline for that transition at present.
For now, this first stage of Casper has to be audited, and the network cannot implement it until more code has been written for ethereum clients, the programs users download to run the cryptocurrency’s protocol. Since Casper will not be compatible with earlier versions of ethereum, the network will need to hard fork.
Ryan told a meeting of developers last month:
“As these pieces of the puzzle are getting closer to being completed, I’ll signal that it’s time to start talking about fork block numbers.”