Circle research

Weekly Crypto Recap 12/28-1/3

Know & go

  • Highlight of the week: Beam, the first live implementation of the MimbleWimble protocol, launched on Jan 3, 2019.
  • Three things to know: (1) Happy 10th birthday, Bitcoin! (2) ICO projects withdrew ~441K ETH from treasuries in Dec 2018 (3) Fortnite store began accepting payments in Monero (XMR) using Globee.
  • Chart of the week: ETH Market Cap vs. ERC-20 Contract Creations (underlying data provided by Mosaic.io).
  • Market snapshot: Total crypto market capitalization is around $129 billion at press time, down 1.3% w/w. BTC is trading at $3793 (down 0.3% w/w), ETH is at $150 (up 17.8% w/w). The peak BVOL in 4Q18 (the rolling 30-day annualized Bitcoin volatility as calculated by BitMEX) was 121% on Dec 19, 2018. It is now at 83%.
    (As of 1/4 11:15AM ET)

Weekly market snapshot

diagram diagram diagram diagram diagram diagram diagram diagram

This week, Mosaic provided us with data allowing us to compare ETH market cap to daily ERC-20 contract creations. While the average ETH market cap in the month of Dec 2018 was 89% lower than the average ETH market cap in Jan 2018, average ERC-20 contract creations in Dec 2018 were only 28% lower than average ERC-20 contract creations in Jan 2018.

Chart sources: coinmarketcap.com, coinmetrics.io, mvis-indices.com/indices/digital-assets

Top Stories

First implementation of MimbleWimble (MW): Beam launch

Beam, a startup based in Israel, launched a privacy-focused cryptocurrency of the same name built on what many have described as the elegant MimbleWimble protocol on Jan 3, 2019. Many in the crypto community have been closely watching the MimbleWimble protocol (published by an anonymous cryptographer in Aug 2016) because it aims to improve upon Bitcoin and privacy coins (i.e. Zcash and Monero):

  • Full privacy: In MimbleWimble, all transactions are confidential by default. MimbleWimble uses a cryptographic tool called confidential transactions to achieve this. Confidential transactions keep the transaction amounts visible only to transaction participants (or potentially to additional designated participants) by using something called a blinding factor, a random value that encrypts transaction amounts. MW also combines confidential transactions with CoinJoin, which pools many transactions together to obfuscate which inputs pay which outputs.
  • Efficiency: MimbleWimble uses transaction cut-through, so that the system only stores current UTXOs, rather than the blockchain's entire transaction history. This would allow the blockchains built on MimbleWimble to be a fraction of Bitcoin’s blockchain size, when they reach the same scale, making it possible for for a consumer grade device to run a full node.

A blockchain based on MimbleWimble checks that (1) the sum of the inputs equals the sum of outputs, and that (2) transactions don't contain negative amounts to ensure that no transaction is attempting to mint new coins (using bulletproofs, a type of zero knowledge proof). The only transaction type that can mint coins is the coinbase transaction, which is also the only public transaction.

Another important distinction of MimbleWimble is that there are no addresses; there are only inputs and outputs. Sender and receiver wallets have to coordinate and interact to complete a transaction - i.e. communication is synchronous. However, solutions have been discussed that could allow wallets to communicate asynchronously.

The Dandelion protocol (which is separate from MimbleWimble) can be used to further enhance the confidentiality guarantee. Dandelion makes it even more challenging for any node observing the network to create a transaction graph and identify users. It does so by dividing transaction propagation across the network into two phases - the stem phase, where the transaction is sent to a single randomly selected peer, then another, then another, until it reaches the fluff phase, where the transaction is broadcasted to all nodes. Other ways to improve confidentiality (such as attaching dummy UTXOs) have been discussed.

The crypto community will pay close attention to MimbleWimble and the projects that launch on the protocol (i.e. Beam and Grin) as they employ their respective strategies to try to solve challenges that Bitcoin and privacy coins face today and integrate new features following the launch of their mainnet. To learn more about MimbleWimble, Beam, and Grin, we suggest the following resources:

  • Mimblewimble whitepaper
  • Crypto 101 podcast with Beam CEO, Alexander Zaidelson
  • What Bitcoin Did podcast with Grin developer, Yeastplume
  • Coindesk article on Beam and Grin
  • Bitcoin Magazine article on Beam and Grin
  • Token Daily article by Mohamed Fouda

In other news

  • Proof of Keys movement debuted on the 10th birthday of Bitcoin's genesis block, urging bitcoin holders to withdraw their bitcoin from centralized exchanges to potentially expose exchanges that are functioning like fractional reserve banks. Source.
  • Fortnite merchandise store now exclusively accepts Monero (XMR) as a payment method. Source.
  • BitTorrent is launching BitTorrent Token (BTT) on Tron to incentivize users to keep their files on the network. Source.
  • Cole Kennelly noted that a CDP (#5305) was opened on Maker with a large amount of collateral (~110K ETH) on Dec 22, 2018. Maker has become one of the most heavily used dApps on Ethereum. Source.
  • Jihan Wu and Micree Zhan, co-CEOs, are stepping down from their positions at Bitmain. Source.
  • Crypto lenders are flourishing despite, and, at least in part, because of the bear market, with BlockFi’s revenues and customer base up tenfold since June 2018, and Genesis issuing $700 million in loans since it launched in March 2018. Source.
  • A European regulated exchange, DX.Exchange, will enable trading in tokenized securities of the top 10 stocks on Nasdaq (Apple, Netflix, Tesla, etc.) and will offer 40 crypto trading pairs. It will not launch in the US until 2Q/3Q19. Source.
  • Bakkt completed its first round of funding of $182.5 million. Timing of the launch of physically settled Bitcoin futures depends on the regulatory review process. Source.
  • In 2018, VCs invested an estimated $2.85 billion USD into 119 blockchain projects in the first three quarters, up 316% vs. 2017. Source.
  • Analysis by Token Analyst shows that an average of 78% of coins are held by 20 wallets across the top 50 crypto assets by market cap. Source.
  • ICO projects withdrew 440,843 ETH from their treasuries in December 2018. Notable withdrawals included Filecoin (~217K ETH) and Kyber Network (~67K ETH). Source.
  • Overstock’s (creator of security token platform tZero) shares hit 52-week lows in mid-December and large shareholders (Passport Capital, Soros Fund, and GSR) have exited their positions. Source.

Global regulatory roundup

  • North Dakota filed legislation to create a committee to explore use of blockchain in state government, joining 17 other states. It could also introduce bill to exempt “open network tokens” from securities and money transmission laws. Source.
  • The Minister of State in India noted that the government still does not recognize cryptocurrencies as legal tender and that they have not yet made a decision on the legality of trading cryptocurrencies or allowing businesses to deal with cryptocurrencies. Source.
  • The Reserve Bank of India has indefinitely delayed launching a central bank digital currency. Additionally, police officers in two states issued advisory warnings against investing in cryptocurrencies. Source.
  • The Iranian government decreed that any contribution to Gram, the cryptocurrency of Telegram, would constitute a breach of national security. Iran banned Telegram in April 2018. Source.

What we’re reading

What we’re listening to

Circle in the news

  • Circle 2018 accomplishments and 2019 themes. In 2018, Circle acquired Poloniex and signed a deal to acquire SeedInvest, subject to regulatory approval, launched USDC through Centre, launched consumer investment app, Circle Invest, and launched Circle Research. Stay tuned for what is to come in 2019!
  • Stable Times at Circle. Coindesk interviewed Circle’s Jeremy Allaire and Sean Neville on the happenings at Circle. Jeremy Allaire, CEO of Circle, is on Coindesk’s list of the most influential people in crypto.
  • Circle Research is hiring an intern. Apply here.

Where we’ll be in January

  • CFA Society of Boston Institutional Crypto Event, 1/10, Boston, MA
  • Asia Financial Forum, 1/14-1/15, Hong Kong
  • Binance Conference, 1/21-1/22, Singapore
  • World Economic Forum Annual Meeting, 1/22-1/25, Davos, Switzerland
  • Paris FinTech Forum, 1/29-2/1, Paris, France

If you have any thoughts or questions, please reach out at [email protected].

Disclosures

Reports, market insights, and other information (“Information”) provided by Circle Internet Financial Limited (“Circle”) or its affiliates have been prepared solely for informative purposes and should not be the basis for making investment decisions or be construed as a recommendation to engage in investment transactions or be taken to suggest an investment strategy in respect of any financial instruments or the issuers thereof. Information has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research under the Market Abuse Regulation (EU) No 596/2014. Information provided is not related to the provision of advisory services regarding investment, tax, legal, financial, accounting, consulting or any other related services and is not a recommendation to buy, sell, or hold any asset. Information is based on sources considered to be reliable, but not guaranteed, to be accurate or complete. Any opinions or estimates expressed herein reflect a judgment made as of the date of publication, and are subject to change without notice. Trading and investing in digital assets involves significant risks including price volatility and illiquidity and may not be suitable for all investors. Circle and its affiliates trade and hold positions in digital assets and may now or in the future trade or hold a position in an asset that is the subject of Information provided. As a result, Circle or its affiliates may be subject to certain conflicts of interest in connection with the provision of Information. Circle will not be liable whatsoever for any direct or consequential loss arising from the use of this Information.