CoinShares, a New York-based cryptocurrency service that provides advice and other services for investors, released a statement on the state of Bitcoin mining during the global uncertainty caused by the coronavirus, ahead of a planned, more thorough June 2020 mining report.
In it, CoinShares’ research director Christopher Bendiksen wrote that the current talk of a possible mining “death spiral” due to coronavirus-based lockdowns makes for dramatic reading, but is not at all based in reality.
“‘Mining death spirals’ do not actually happen in real life,” Bendiksen wrote in the statement. “They are highly theoretical edge cases without any historical real-world precedent … Mining is here to stay.”
Confidence in the mining space and in bitcoin generally, despite economic uncertainty around the world, is high at the firm.
“Bitcoin is arguably the only financial asset that can operate remotely — nobody needs to go to work to make bitcoin work,” Danny Masters, executive chairman of CoinShares, wrote in a supplementary statement sent to Bitcoin Magazine. “Nobody needs to fill an ATM machine. While things look bleak for everything, I can’t think of a better asset to buy than bitcoin.”
Difficulty, Block Frequency and Hashrate
The cost of Bitcoin mining is largely a function of the difficulty — a dynamic metric determined by the protocol itself that can adjust both up and down to keep block times at 10 minutes on average.
Further Reading: What Is Bitcoin Mining?
The difficulty has reset downwards many times — sometimes dramatically as the result of a pullback in price, as in November and December of 2018 — but the network has never ground to a complete halt or even come anywhere close to doing so.
“There is no price level that could cause Bitcoin’s emission rate to increase,” reads Benedickson’s statement. “When the dust settles on the current financial crisis, the Bitcoin monetary system will have created exactly as many bitcoins as originally intended.”
In essence, the Bitcoin mining difficulty adjustment keeps Bitcoin block frequency steady, no matter the amount of total network hashrate.
What About the Halving?
“If prices do not recover, the hashrate will fall — and when the halving hits, it will fall again,” wrote Bendiksen. “This is not a problem for Bitcoin, nor is it unprecedented.”
And it’s not always the biggest bitcoin mining groups that will survive a major bitcoin price recession, contrary to what you may be hearing. It will be the groups that have the cheapest energy costs and the newest, most efficient hardware.
“The halving is still a couple months away and many miners are already closing up shop,” Bendiksen said in a follow-up interview with Bitcoin Magazine. “So, at the time of the halving, we will likely be in a completely different difficulty environment than now. Recent estimates show that as much as 25 percent of the peak-level hashrate may already have been turned off.”
While CoinShares suggests that post-halving mining will be different than the current and near-future mining environment, Bendiksen does believe today’s status offers an insightful window.
“For all of those who are worried about the halving, this is a perfect prelude because the end effect on miners is the exact same,” he wrote in his statement. “Hence, the hashrate dynamics we’re likely to see in the upcoming weeks will be an excellent parallel to those we might also see after the halving in May.”
Bendiksen acknowledged that some of the higher-cost miners may drop out after the halving, but he also sees mining companies stabilizing and building for the foreseeable future.
Building the Mining Infrastructure of the Future
Meanwhile, Blockstream Mining is quietly building its mining business with facilities in Quebec, Canada and Georgia, USA, with over 300 MW of energy and a thriving colocation service offering equipment, space, bandwidth and power rental for miners who can benefit from inexpensive energy without needing to negotiate separately with local authorities.
According to Blockstream CSO Samson Mow, the company has taken steps to be ready for the halving, come what may. Despite the current turmoil, it is focused on the long term.
“For Blockstream’s mining operations, our electricity and operational costs are low enough that we can outlast most miners and be the last ones standing,” Mow told Bitcoin Magazine in an interview. “Also, we’ve mined bitcoins for quite some time and we HODL for the medium term, so a price drop during the halving would actually have no impact for us.”
Mow noted that, while it’s hard to predict the price, he believes some inefficient miners may need to shut off, while most miners will be fine through the halving.
“I think the bitcoin price will recover to a point where, post-halving, it will still be profitable to mine BTC,” Mow said. “Even if that doesn’t happen, it’s not likely we will see a massive drop in hashrate. Many miners are already on the latest generation of equipment and have already recouped those costs, so they only have to deal with opex [operational expenditures].”
Investors Are More Cautious But Still Interested in Bitcoin Mining
Ryan Porter, head of business development for mining-focused financial services and brokerage firm BitOoda, was busy fielding inquiries about new North American mining opportunities in December 2019.
Now, he said, he’s still getting inquiries but potential mining companies are more cautious and want to lock in competitive energy pricing.
“Overall, what we’re seeing is the miners that were well positioned to be profitable after the halving are still well positioned now, where the miners that would have needed to shutter operations have had to fast track those plans,” Porter told Bitcoin Magazine in a phone interview.
“We’ve seen hashrate fall precipitously as now unprofitable mining rigs are being taken offline, and conservative operators who were thoughtful about managing their bitcoin price risk are now looking to purchase hardware at distressed prices.”
Porter is confident that the best-managed mining operations that have inexpensive power sources and efficient computers will survive the halving. What he’s seeing is the next stage in the evolution and maturation of the mining industry.
“Where we are starting to see a change in planning for miners is how they’re approaching risk management,” he added. “We had previously engaged with miners on implementing BTC price-hedging programs, and we’ve had quite a few of those firms reach out to us over the past week to start a meaningful risk management engagement.”
The CoinShares team is confident that bitcoin and its critical mining industry will ride out the coronavirus storm. In his interview with Bitcoin Magazine, Bendiksen noted that, unlike the fiat monetary system, the bitcoin system is “run coldly and unemotionally by a network of computers according to pre-set rules.”
“These computers never need to work from home, never get sick, scared or panicked and can not be influenced to print money by charismatic or powerful politicians, even in the most challenging times,” he said. “They simply execute their code as prescribed, no matter what is happening in the world.”
The post Coronavirus, the Halving and a Price Drop: Bitcoin Mining Marches On appeared first on Bitcoin Magazine.
Will DeFi crash the crypto-economy, the same way CDOs did?
Let’s talk about the elephant in the room.
Decentralized Finance has been all the rage for the past few months, and its tokens’ prices are a testament to the excitement. But while the objective of decentralized finance is a financial world which is without a centralized authority, one administered through efficient and seamless smart contracts and operated through digital currencies, in reality, it could fall well short of this lofty goal and end of like one of the worst financial experiments of the century – CDOs.
CDOs are collateralized debt obligations or packaged debt securities, mostly from mortgages, which were issued by banks, invested by investment companies, and sold to investors. The basis for the entire CDO market was – the American housing market. When the housing market collapsed i.e. when home owners failed to pay their dues, the pyramid fell, bringing down the whole system with it. According to estimates from the IMF, U.S and European banks lost over $1 trillion for essentially betting on toxic assets and from bad loans between January 2007 to September 2009.
What’s happening in the DeFi world is quite similar to what happened a decade ago with CDOs. Richard Red, Research and Strategy lead at Decred, speaking to AMBCrypto, stated that because DeFi has had a number of high profile exploits, there’s a massive amount of attention drawn to the space. This attention is poking holes in many protocols’ smart contracts and highlighting that the system is not very reliable at all. Red said,
“This situation has a lot of similarities to the issues with collateralized debt obligations which were the cause of the 2007 financial crisis (complexity which hides risk). “
Comparing DeFi to CDOs, we see a common pattern emerging.
Packaged and repackaged CDOs were the latest financial product on the market, allowing all parties to participate in the creation and movement of debt. Here, companies built tranches of debt-burdens based on the likelihood of it being paid back. These ones which were unlikely to be paid back were labelled ‘sub-prime.’
Rating agencies, despite rating the debts poorly, rated the debts combined into tranches highly. These tranches were sold to everyday retail and institutional investors. Essentially, the play was this – if the homeowners pay regular interest, everyone makes money, if they don’t no one makes money.
DeFi also has this ‘all encompassing’ aura around it, bringing every type of financial company into the space – from lenders to borrowers to insurers. Bringing together so many people under one system gives rise to profit-taking, Red explained.
“At an aggregate level, the degree to which DeFi users string different protocols and smart contracts together must also result in some systemic risk, as each smart contract relies on the inputs from other smart contracts to behave in a predictable way.”
With the motivation to take profits, more people flood in and lead to more chances of flaws within the system being discovered. Red suggested that ‘novel protocols’ are being elevated because of this rush, and often times, they “may not be reliance in all circumstances.”
Similar to what happened with CDOs, with some banks profiting from it, many others decided to jump in. This created a rush as mortgage-backed securities became the “new thing.” Because of this rush, even the more well-established banks could not figure out how to manage the debt-securities and if they would be paid back at al. This vacuum of information built the bubble which eventually popped,
“The complexity that results from the interactions of all these novel protocols means that it can be very difficult even for experts to know exactly what is happening, and unexpected things which are difficult to explain happen quite regularly.”
While it’s still in a nascent stage, the DeFi ecosystem’s growth is beginning to grow out of proportion. A rush to take profits will only reel more people in, putting pressure on existing institutions to deliver poorly structured products which can satisfy the demand. If this goes on without change, a correction is a matter of when and not if.
Algorand: The Dark Horse of Crypto World
Ethereum continues to be the de facto choice for most crypto projects. However, its scalability limitation and overcrowding have forced many crypto projects, especially the DeFi ones, to seek other alternatives. Though there are several capable and attractive blockchain solutions available, Algorand has rather quickly grabbed many projects’ attention. Besides new projects opting for the ecosystem, older ones included Algorand realizing its potential. And Algorand is proving them right with regular essential feature updates.
The Underlying Technology of Algorand
Algorand employs the Pure Proof-of-Stake (PPoS) consensus mechanism, which is stake-independent, assuring equal selection chance. The block producers and validators are selected through lucky draws that ensure their identities stay hidden.
Algorand uniquely tuned with the following features –
- High Speed & Throughput – The near-instant lottery, coupled with a block production completion rate of about 4 seconds, enables the mainnet to deliver an over 1000 TPS throughput.
- Highly Scalable – Being totally independent of each other, multiple lucky draws are processed simultaneously. This grants a linearly scalable network.
- Security – The complete random selection ensures all data remains tamperproof. The stake size-independent nature prevents lottery manipulation.
- Proper Decentralization – The random selection of nodes and block contributors guarantees a high degree of decentralization.
- No-fork Policy – In the Algorand blockchain, a block once attached to the chain cannot be altered in the future, promising no future forking.
- Enterprise-grade Solution – Algorand is developed with DeFi in mind, and thus, naturally, the entire ecosystem is built to benefit big organizations in every way.
Algorand’s Important Feature Set
Just like other next-gen blockchain platforms, Algorand 2.0 has adopted a layer-1 focused service implementation policy. But the challenge here is optimizing all those services without sacrificing the speed and scalability Algorand promotes. However, subsequent feature addition on layer-1 showed the Algorand team’s expertise in finding innovative solutions to these complex problems.
The following three features helped Algorand bag some of its best, most important, and influential projects.
#1. Algorand Standard Assets (ASAs)
Introducing the standardization method enables the tokenization and issuance of any asset types on the platform. ASA supports the following token types –
- Fungible assets – Cryptocurrencies, stablecoins, and utility tokens
- Non-fungible assets – Gold, a digital collectible, a single piece of jewelry
- Restricted fungible assets – Security tokens, securities
- Restricted non-fungible assets – Licenses, certifications
#2. Atomic Transactions
Atomic Transfers groups together fungible tokens of multiple parties and process them simultaneously, thus offering a fast, low cost, and secure solution. This benefits various daily trade activities such as –
- Operate trades without trusted intermediaries in DEX
- Simultaneous multi-party payments
- Group payments facility where payments get approved only when everyone pays
#3. Algorand’s Smart Contracts (ASC1s)
Algorand first added stateless smart contact and then went on to add stateful versions, both on layer-1. For comparison, Ethereum offers just stateful smart contracts.
Stateless smart contracts bring efficiency and faster solution to the table as instructions/conditions are provided within each transaction itself. In Algorand’s version of stateful contracts, state data is supplied not with the transaction but with creator/user accounts. This method also offers concurrency and efficiency at a low cost. With both versions, Algorand presents the options of customizability and speedy solution.
Algorand uses a language called TEAL for writing smart contracts. With the introduction of PyTEAL support to both smart contracts, developers would easily write contracts in familiar Python code while it gets translated automatically into TEAL.
#4. Fast Catchup
This feature enables developers to begin working on their DApps without waiting for the entire blockchain to sync. This syncing process can take hours or even days, depending on the size. Developers can download either the entire blockchain or from a particular block where the previous blocks are hashed.
Rekeying allows users to change the security or authorized spending anytime while keeping a single long-running public address. This also enables changing it from a single key to a multi-signatory key to a stateless smart contract with a built-in spending policy.
- This benefits digital asset custodians where, for example, they can have a wallet of multiple private keys with different spending limits.
- Automate crypto inheritance, which will be further enriched when Algorand introduces outside oracles
- Allow you to give account access to other in a trustless manner while retaining the control
Within just two years, Algorand has garnered over 34 partnerships with many of them being important DeFi projects. This shows Algorand’s effectiveness.
- Tether – With the launch of USDT, the leading stablecoin by market cap, on the Algorand blockchain, Tether became the first stablecoin firm to partner with Algorand.
- Circle – Following Tether’s footstep, Circle entered into a partnership with Algorand for its USDC, the fastest-growing and number two stablecoin.
- International Blockchain Monetary Reserve (IBMR) – IBMR.io selected the Algorand platform to launch the Southeast Asia Microfinance Platform (ARC.one) and create ARCC stablecoin on Algorand. Their focus is to support the financial inclusion of the urban-class poor in Southeast Asia.
- SFB Technologies – The firm tasked with developing Marshall Islands’ Central Bank Digital Currency (CBDC) Marshallese Sovereign (SOV), narrowed down Algorand as the underlying blockchain infrastructure.
- IDEX – IDEX partnered with Algorand to offer its next-gen solutions and cash on ALgorand’s growing popularity.
- Verady – With this collaboration, Algorand benefits from crypto tax and accounting software firm Verady’s Ledgible platform for internal accounting and auditing.
- AssetBlock: The real estate startup project selected Algorand to launch its tokenized property investment service
- Meld – This collaboration project uses Algorand’s ASA to tokenize the Australian gold reserve, issue stablecoin, and track it across the supply chain.
- Stonize – It has launched its secure, decentralized, and customized digital security services on the Algorand blockchain.
- FIDE – FIDE online, the digital wing of World chess (FIDE), has selected the Algorand blockchain to store all online official tournament data and player rankings there.
- PlanetWatch – The first “CERN Spin-off-labeled” organization is set to develop the world’s first immutable air quality ledger on the Algorand blockchain incorporating IoT technologies to monitor the environments.
Algorand is feature-rich and its approach to offer a complete solution for enterprises is proving its mettle. Though starting as a dark horse, it is coming out to be a major player, especially in the DeFi space, going toe-to-toe with Ethereum. Don’t get surprised if Algorand becomes the dominant DeFi platform in the near future.
Decentralized Marketplace OpenBazaar To Close Unless Community Donates
The most well-known decentralized marketplace said it had no choice but to close unless its community donates.
- Decentralized marketplace OpenBazaar said Friday that it did not have sufficient funding to continue.
- One of the longest-running decentralized marketplaces, OpenBazaar said it had “no choice” but to shut down its services due to a lack of user growth.
- But it said it could continue if the community makes donations.
Decentralized marketplace OpenBazaar said on Friday that it will close down unless it receives more financial support.
OpenBazaar said in an announcement that its services—seed nodes, API wallet, exchange rate API—would be shutting down unless significant donations are sent.
The marketplace said that it had “no choice” but to shut down its services due to a lack of “level of user growth and adoption.”
OpenBazaar, launched in 2014, is one of the longest-running decentralized marketplaces.
Decentralized marketplaces are trustless networks allowing people to buy and sell goods online. They don’t have a single entity controlling them—like Amazon—and anyone can help run their peer-to-peer networks.
This is small potatoes compared to darknet markets, which, combined, trade anywhere from $5-15 million each day, according to analysis of 2019 data by Chainalysis.
OpenBazaar says it does not cater to illicit commerce, though various prescription medications like oxycontin and tramadol—illegal to buy online in some countries—are available on the marketplace.
OpenBazaar said that its messaging and wallet app, Haven, will also stop working on October 1.
Instructions on how users can release their funds will be published in “coming days,” the marketplace said. OpenBazaar’s search engine and Blockbook indexer code will also be made open-source “for those that may want to run the infrastructure privately.”
But the marketplace added that there was still hope to save its services. “There is only one possibility for OpenBazaar and Haven to continue, and cancel the shutdown: community support,” it said.
At the time of writing, the marketplace has received $11,672.44 in Bitcoin donations; $979.78 in Ethereum; $110.76 in Bitcoin Cash; $13.47 in Litecoin; and less than $10 in Zcash. OpenBazaar does not state how much it needs to remain operational.
OpenBazaar allows users to buy and sell goods online with cryptocurrencies, including Bitcoin, Bitcoin Cash and Ethereum.
Unlike other online marketplaces—like eBay—there are no fees to list or sell goods on OpenBazaar and no middleman taking a cut.
An open-source project, there is no single entity running OpenBazaar but rather a number of developers who help the peer-to-peer network function.
OpenBazaar launched in April 2014 at a hackathon in Toronto as a project called “Dark Market.”
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