Crypto-digest 05.10: This Blockchain tosses blocks: Naval, MetaStable back twist on crypto ‘cash’; ‘Ebay for CryptoKitties’ raises $2 million from All-Star VCs; Bear Mood? $9K still in play despite Bitcoin rally; Crypto Is the ‘People’s Revolution,’ says investor Mike Novogratz; Australian government looks to Blockchain for trade modernization; Investment advisor Morgan Creek tokenizes tech firm’s paper shares.
This Blockchain tosses blocks: Naval, MetaStable back twist on crypto ‘cash’
A blockchain without the blocks?
Not exactly, but a company launching Wednesday called O(1) is seeking to take the unorthodox approach of throwing out the blocks its new Coda protocol produces as soon as they elapse. While that might seem illogical since blockchain’s immutable history is to many its principal benefit, an impressive line-up of investors believes the idea could be just what cryptocurrency needs.
Led by Metastable, AngelList co-founder Naval Ravikant, and Twitter and Google alum Elad Gil, O(1) has secured a $3.5 million seed equity round, with investment from Coinbase alums Fred Ehrsam and Linda Xie and Polychain Capital joining to complete the fundraise.
“What attracted me was a small, scalable blockchain that’s still independently verifiable on small nodes,” Ravikant told CoinDesk.
And that’s no small feat given the growing costs of storing major blockchains, which are designed largely to keep a record of every transaction ever made over the network. Still, that transaction history is also a strength since that’s what allows miners and users to check the accuracy of transactions.
But if there’s no requirement to hold the ledger, why would anyone trust the Coda Protocol to be accurate?
Because it uses something called “snarks” in a clever way. If you’ve been around crypto, you’ve likely heard the term zk-snarks, most widely known as a privacy technology advanced by zcash, but which has recently gained momentum with other blockchain projects including ethereum and even JPMorgan’s private blockchain Quorom.
Yet, O(1) isn’t so much concerned about the privacy aspects of the technology (it’s not a privacy coin, because a validator could hold onto the ledger if they really wanted to) but believes it can be adapted to build a blockchain that doesn’t have the scalability hurdles of blockchain’s today.
“It’s a cryptocurrency that’s decentralized at scale,” O(1)’s co-founder and CTO Izaak Meckler explained.
He told CoinDesk:
“I think what we’re building is really decentralized peer-to-peer cash. So, basically people who are enthusiastic about that idea would be enthusiastic about our protocol.”
O(1)’s protocol will support a native cryptocurrency called coda coins using an uncapped networked of proof-of-stake validators, but distribution plans and the size of the cryptocurrency pool have yet to be determined.
All O(1) would commit to was launching the testnet in the third quarter of this year.
Snarks for scale
There should be lots of people excited about the concept, but probably many wondering how exactly it works.
Simply, a snarks cryptographic proof – one that can demonstrate that every wallet on the blockchain has the crypto that it should – stands in for the full ledger. The ledger then does not need to be stored forever; the proof stands in for the transaction history and explains the blockchain’s state.
Each new block will generate a new proof, which reflects the validity of past proofs that will be transmitted to every wallet. Because the proof will be only a few hundred bytes, vastly smaller than the gigabytes a bitcoin node needs to download to participate in that protocol’s verification, O(1) contends even smartphones will be able to run verification on the snarks proof.
“There’s this tension between scaling and decentralization because the burden of decentralization increases as the network grows,” Meckler said.
But the Code Protocol has been designed so that every new proof stays the same size.
“In our, case it’s really succinctness that’s important. These things are a few hundred bytes, like a few tweets, and they can be checked quickly,” Meckler said. “So the chain itself never grows.”
According to Meckler:
“It’s like a picture of a picture of a picture.”
Making it understandable
This is what makes the Coda Protocol so technically compelling but also psychologically daunting.
Knowing that the bitcoin blockchain has a line item for every transaction ever made is something many can grasp intuitively. O(1)’s use of snarks proofs blurs that process a bit and could be challenging for many to really wrap their head around, or more importantly trust.
Meckler acknowledges this, saying, “Something is not truly a proof unless it’s legible to you. A core design constraint for us is: Let’s make this something that’s something easy to read.”
To that end, O(1) wrote a programming language called Snarky for writing verifiable computations.
And while that may still be over the average user’s head, the O(1) detailed a hypothetical application on their blog.
The example outlines how votes would be hashed and counted when a group was trying to decide what pizza toppings to order. While silly, the example displays how each vote is hashed separately and then hashed together so that all users can tell their vote was counted, but can’t view any other user’s vote.
Speaking to the trustworthiness of snarks, Ravikant said, “So far so good although the only real solution here is more time and more scrutiny.”
Yet, the O(1) team itself seems is optimistic its design will drastically change the blockchain space, saying in a statement:
“By compressing the blockchain down to the size of a couple tweets, Coda makes entirely new things possible.”
‘Ebay for CryptoKitties’ raises $2 million from All-Star VCs
More money is being poured into crypto cats.
Well, cats, and the slew of other non-fungible digital items made possible by new token standards, such as ethereum’s ERC-721. And these crypto collectibles now have a home in OpenSea, a marketplace for allowing users to buy and sell these items – an Ebay for CryptoKitties if you will.
Coming out of Y-Combinator last winter, OpenSea today announced a $2 million seed equity round led by 1confirmation, with participation from a series of other high-profile crypto investors, including Founders Fund, Foundation Capital, Blockchain Capital, Coinbase Ventures, Chernin Group, Stable Fund and Blockstack.
“When CryptoKitties came out, it was this exciting, mainstream, fun use case for blockchain,” Devin Finzer, co-founder of OpenSea, told CoinDesk.
Indeed, the ethereum-based decentralized application for buying, selling and breeding digital cats was a quick hit within the community, launching in November last year and peaking in December, when the game nearly brought the ethereum blockchain to a halt as it tried to deal with a significant increase in transactions.
Many concluded that the game helped push blockchain technology and cryptocurrency into the mainstream, and others argued that the game displayed a blockchain use case that could expand away from silly cats and into serious business (such as real estate). For instance, Union Square Ventures and Andreessen Horowitz led a $12 million investment round to spin CrypoKitties out of its parent company so that the team could really dig deeper into future applications for the concept of non-fungible digital items.
And while those serious applications have yet to be realized, a spate of similar games were created after CryptoKitties success, including the more general CryptoPets, CryptoCelebrities and Crypto All-Stars.
But according to OpenSea, users need a place to more easily buy and sell those items.
It turns out OpenSea wasn’t alone: the decentralized online marketplace for physical items OpenBazaar has plans to open up its platform for digital items such as CryptoKitties as well, plus OPSkins recently created Wax, a platform for spinning up decentralized exchange services for these items.
So far, it looks like a fine idea, according to Finzer, who said:
“We’ve so far had about half a million [dollars] in volume pass through our marketplace.”
The go-to marketplace
One of the keys to OpenSea’s success, according to Finzer, is the team’s relationship with crypto game developers.
As to be expected, OpenSea has done best in offering a “store” for games that don’t already have built-in marketplaces (many game developers want to focus on the game and so aren’t keen to building a marketplace on top). As those game developers hear about OpenSea, they’ve typically just made OpenSea the game’s official digital shop.
“We’ve kind of developed a synergistic relationship with game developers,” Finzer said, adding that OpenSea offers a revenue share model depending on what marketplace duties are handled by what party (although Finzer declined to discuss this in more detail).
Yet, OpenSea is available for more than just games, although that’s the company’s main stream of business. For instance, one art project used OpenSea and Finzer said it could also work as a marketplace for software licenses.
We’ve barely scratched the surface on what these crypto collectibles and a marketplace for them could offer.
One thing that’s interesting about these programs, for instance, is that because a CryptoKitty, for example, is just a piece of code, different interfaces will create completely different visualizations of that cat (as recently displayed by a viral art image made purely from code).
These different visualizations could be shared between users and might make the games even more fun.
Zombies for kitties?
Plus, Finzer wants to facilitate the trade of items that aren’t even part of the same game.
This would go above and beyond digital games today, where items that are part of a centralized game must stay within that universe, he said, adding:
“I could be breeding zombies and you could be breeding kitties. I think what that results in is, these items having a lot more value than they would in the existing digital world.”
In fact, this kind of cross-collaboration has already happened – a new game called KittyRace allows users to race their CryptoKitties.
This kind of thing, Finzer said, has garnered quite a bit of interest from other crypto gaming companies.
This interest in digital items isn’t new only to the world of cryptocurrency, though. In fact, the market for gold within the massively multiplayer online role-playing game World of Warcraft is so lucrative that prisoners in China are made to mine the stuff for sale to gamers in the developed world.
Yet, Finzer said, he plans to stay out of the world of trading digital items for physical cash, namely because it’s a business that’s somewhat frowned upon, but also because he doesn’t see a lot of opportunity in enticing more traditional gaming companies to move to a blockchain.
“The technological benefits of moving an existing game to a blockchain are actually negative now,” he said.
That doesn’t get Finzer down, though. He sees tremendous opportunity focused on crypto.
“Our thesis is that the most interesting use cases for blockchain-based games will come from new games rather than existing games.”
Bear Mood? $9K still in play despite Bitcoin rally
Despite a brief rally yesterday, bitcoin (BTC) is still in corrective mode and risks falling back below $9,000, chart analysis suggests.
The cryptocurrency broke out of the bearish falling channel setup Wednesday, courtesy of a bullish relative strength index (RSI) divergence – indicating the pullback from the recent high of $9,990 had ended at a low of $8,980.
The breakout also raised the prospects of a stronger move towards $9,767 (April 25 high) and possibly even the $10,000 mark.
However, the ascent has been cut short around $9,380 in the last 15 hours, as seen in the hourly chart below.
As of writing, bitcoin is attempting a break above $9,380 on Bitfinex, above which a major resistance is seen at $9,442 – the 200-hour moving average (MA). Meanwhile, a strong support is seen at $9,228 (marked by a circle).
The momentum studies are biased bearish. For instance, the 100-hour MA is trending south in favor of the bears and the 50-hour MA is still gradually descending (yet to bottom out or shed bearish bias).
As a result, a convincing move above $9,442 could be a tough task.
Further, the short-term moving averages in the daily chart have rolled over in favor of the bears.
The bearish crossover between the 5-day MA and the 10-day MA indicates a short-term (5 days) bullish-to-bearish trend change. It also indicates the pullback from the recent high of $9,990 has not run its course.
A break below $9,228 (support on the hourly chart) would add credence to the bearish 5-day MA and 10-day MA crossover and open the doors for a drop to $8,980 and $8,868 (100-day moving average).
A daily close (as per UTC) below $8,652 (April 26 low) would confirm a bearish reversal.
On the higher side, a daily close (as per UTC) above the 10-day MA (currently located at $9,452) would signal the end of the pullback from the recent high of $9,990.
Crypto Is the ‘People’s Revolution,’ says investor Mike Novogratz
“This has been the people’s revolution,” Michael Novogratz of Galaxy Digital told the crowd at the Fluidity Summit in Williamsburg, Brooklyn on Thursday.
Speaking from notes written on the back of a paper plate, he added:
“We have never had a market mania led by retail before.”
But Novogratz came to talk about the move of institutional investors into cryptocurrency following last year’s dramatic boom in prices. Novogratz started his remarks by mentioning his company’s own big recent development, the launch of the Bloomberg Galaxy Crypto Index, which tracks the most liquid assets trading on blockchains.
“I’m hoping yesterday marks the beginning of the institutionalization of crypto as an asset class,” Novogratz said, because “big problems need big capital.”
And Novogratz emphasized that he believes that crypto’s big impacts will happen at the street-level, where regular people do things like rent rooms, ride cars and pay each other to do work.
“The decentralized revolution is going to have its biggest impact in the retail sense,” he said, but to get there it will take the investment power of the big institutions.
Describing recent meetings with staff at Deutsche Bank, the New York Stock Exchange and Goldman Sachs, Novogratz said he believes it is happening – and this year.
“There are three superhighways that all of you need to follow,” he advised the crowd of roughly 700 people.
First, computer science, where he said he tries his best to sit with his computer engineers and follow the technical underpinnings of the industry. He cited two immediate technical challenges, scaling and the proper balance between speed and security.
“We have a bet on EOS because I think people like speed and convenience. We also have a bet on ethereum,” because it has the most developers, he said. “My intuition is: we don’t need 100 blockchains.”
He also said his intuition tells him the problems of balancing security and network scaling will get solved.
Second, he pointed to token economics, saying: “It’s the coins that are exciting.”
Novogratz stated that investors haven’t thought deeply enough about the new coins.
“2018 is an important year because most of us as investors, myself included, didn’t think enough about how do these tokens work? And why do they have value?” he asked.
Typically, it’s argued that if a protocol doesn’t give reasons for buyers and sellers to hold onto a token, its value will drop to zero. Novogratz doesn’t believe that’s quite right though.
He argued that in, for example, a decentralized ridesharing protocol, a lot of riders and drivers will both hold onto a small amount of token as a speculative investment.
“The token is a future on how many rides a token can get,” he said. As the protocol grows, it will take less of a token to buy a ride and the value of coins will grow. “Even though that’s speculating on the future, it feels a lot like equity.”
Lastly, he mentioned institutional investors. “The institutional herd is on the move,” he said, adding that he prays every night that established players will get into the custody game to make it happen.
“We need custody to hit the tipping point,” he said, adding that the pension program of state employees in Wisconsin (for example) isn’t going to be comfortable using a startup for custody.
“There are three superhighways and the trucks are moving on all three superhighways,” he told the crowd, concluding:
“I’m more bullish this year than I was last year.”
Australian government looks to Blockchain for trade modernization
Australia’s Department of Home Affairs (DHA) is looking to blockchain technology to provide secure and transparent international trade and supply chain management.
The department is hoping to modernize international trade management in the country and is pushing for a pan-governmental framework for emerging technologies, including blockchain, AI and the internet of things, to provide real-time intelligence on the country’s supply chain activities.
The DHA proposed the framework during a joint standing committee on trade growth on Thursday, a ZDNet report says.
A spokesperson from the department was cited as saying:
“Intelligence and risk assessment capabilities and revenue collection are improved by new and emerging technologies, such as blockchain, that would improve the veracity, validation, and analysis of intelligence and trade data.”
The DHA is currently researching, investigating, and understanding the applicability of blockchain in developing its trade modernization plan.
In a submission to the committee, the department said that, in the coming four years, it expects to see a 28 percent increase in air cargo and a 13 percent increase in sea cargo imports to Australia.
Blockchain could play a role on reducing trade documentation and associated costs, as well as reducing delays associated with errors in the the movement of paperwork, it continued.
Further, the modernization effort could lead to “increased safety and security as well as greater efficiency in border inspection clearance procedures.”
The submission concluded:
“A secure and modern end-to-end supply chain is fundamental to Australia’s security, growth and prosperity.”
Investment advisor Morgan Creek tokenizes tech firm’s paper shares
Morgan Creek Blockchain Capital is tokenizing a private company’s equity, turning its existing shares into new security tokens.
The blockchain wing of Morgan Creek Capital Management, an investment advisor, announced Wednesday that it is working with Anexio Technology Services to convert all of its physical shares into an ERC-20 token. The ERC-20 standard allows for the creation of tokens on the ethereum network.
The company plans to raise $40 million by selling the tokens to accredited investors.
Morgan Creek chief investment officer Mark Yusko told CoinDesk that the investment firm partnered with Anexio because it was confident in the firm’s economic position, noting that it “is one of the 500 fastest-growing companies in the U.S.”
On its own, Anexio already qualified for financing through a bank, he said, which “gives a sense of the financial health of the business.” The company produces graphical processing units (GPUs) and will expand its production capabilities with the funds it expects to raise.
Anthony Pompliano, a partner with Morgan Creek Blockchain, explained that tokenizing Anexio’s shares allowed it to raise funds from a broader group of people, telling CoinDesk:
“By tokenizing the business, we took the cap table, the paper shares – every company in the world has paper share certificates – and we tokenized it. We swapped, one for one, the paper shares for tokens, which allow for a global investor base and trades on a security exchange.”
The benefit for investors, Morgan Creek Blockchain partner Jason Williams told CoinDesk, is that “It has all the benefits of a cryptocurrency, but the underlying asset is a company with assets and cash flow.”