Circle research

Weekly Crypto Recap 11/30-12/6

Know & go

  • Highlight of the week: Vertcoin has been experiencing multiple 51% attacks. This could have implications for the security of "long tail" crypto assets.
  • Three things to know: (1) Bitwise launches two new funds amidst greater demand (2) BSV and BCH flip-flop (3) SEC delays decision on Van Eck/SolidX Bitcoin ETF.
  • BVOL (the rolling 30-day annualized Bitcoin volatility as calculated by Bitmex) fell to a low of 14% on Nov 14. It has been above 111% since Nov 30 and is now at 116%.
  • Total crypto market capitalization is around $107 billion at press time, down 17.6% w/w. BTC is trading at $3378 (down 16% w/w), ETH is at $86 (down 24% w/w).*
    *As of 12/7 11:00AM ET

Weekly market snapshot

Top Stories

Crypto assets vulnerable to 51% attack

Mark Nesbitt, Coinbase engineer, published an article outlining four distinct instances of 51% attacks on Vertcoin. Attackers have successfully executed multiple reorganizations on the Vertcoin chain in recent months, enabling double spends worth $100,000 with the most recent reorg having a depth of 307 blocks (depth refers to the number of blocks that are replaced with new blocks). Other long-tail crypto assets that have suffered 51% attacks include Verge, Bitcoin Gold, and ZenCash.

If an attacker acquires more than 50% of the resources of the network, the miner can facilitate a chain reorganization (“reorg”) that allows the attacker to rewrite the canonical transaction history by replacing a certain number of blocks with new blocks. This allows the attacker to reverse previously confirmed transactions and double spend coins (i.e. successfully spend coins more than once):

“The miner could send those coins to a merchant in a transaction, T, while also secretly extending an alternative block history. The miner’s secret blocks do not include T, but rather include a transaction that sends the same coins used in T to a different address. Call that transaction T’. When the miner reveals this secret history, it will contain T’, not T. Because T and T’ attempted to send the same coins and T’ is now in the canonical history, this means that T is forever invalid, and the recipient of the coins sent in transaction T is out of luck.”

- Mark Nesbitt

In this Breaker Mag article, Vertcoin developer Gert-Jaap Glasbergen highlights that attackers can only double spend coins they own - the attacker has to be the original sender. Transactions from senders that are not the attacker are still valid and can still be included in future blocks mined by the attacker.

Therefore, the main threat is to entities that accept the coin being double spent. This makes exchanges key targets for attackers performing these attacks: “Reversing the transaction that made a deposit into the exchange’s account after a trade was made would mean that the attacker effectively received the second currency for free.” Exchanges could increase the number of blocks that need to be mined before a deposit is considered valid and not subject to a double spend attack. However, as with Vertcoin, increasing the number of confirmations into the hundreds still would not be sufficient.

Additionally, Vertcoin is an ASIC resistant coin in that it uses a hashing algorithm that is optimized for consumer grade hardware (specifically GPUs) over which ASICs cannot have a major advantage (in theory). The main argument for ASIC-resistance is greater decentralization, though potentially at the cost of network security because anyone with consumer-grade hardware (significantly more affordable than ASICs) can now attack the blockchain. A Vertcoin developer provides his thoughts in a response here.

However, Glasbergen tells Breaker that the availability of cheap hashpower for rent through cloud mining marketplace Nicehash (requires low opex and zero capex) and the development of ASICs for the Lyra2REv2 algorithm used by Vertcoin are the key factors that enabled the attack.

The recent attacks on Vertcoin have significant implications on the “long tail” of crypto assets, which are more heavily impacted by the crypto bear market and declining mining activity. Smaller networks are more vulnerable as the cost of conducting an attack is significantly lower relative to larger networks.

In other news

  • BSV and BCH (ABC implementation) keep swapping positions on CMC in terms of price. BSV is trading at $105 at press time (11AM ET), up 9.8% w/w. BCH is trading at $103, down 40% w/w. Source.
  • Arjun Balaji outlines multiple reasons why Bitcoin is not entering a miner induced death spiral, including that higher fees can incentivize miners to continue mining if hashrate drops in between difficulty adjustments. Source.
  • If Bitcoin ends the year below $5,959, bitcoin's price loss in 2018 will have been it's biggest annual price loss in its history. Source.
  • Many dApps rely on Infura, which provides developers a way to connect to Ethereum without running a full node. It is operated by ConsenSys and hosted on Amazon cloud servers, and presents a single point of failure is dangerous for all dApps connected to it. Source.
  • 0x launches 0x Instant, which makes it simple to add crypto purchasing to apps and websites. Source.
  • Aion publishes its first foundation report, which details how it has been managing its ETH treasury. The project has sold half of the crypto it raised for fiat. Source.
  • Slow.trade is building an application on top of the DutchX protocol for trading ERC-20 tokens. Source.
  • This chart by Mike McDonald shows how much ETH is circulating in the DeFi ecosystem. Source.
  • Binance releases a video on Binance DEX. Source.

Recent funding

  • ErisX, which plans to give investors the ability to trade spot and future crypto assets, raises $27.5 million from investors including Fidelity and Nasdaq. Source.
  • Nonprofit Conflux Foundation raised $35 million from firms including Sequoia China, Baidu Ventures, F2Pool, Huobi, Metastable, and IMO Ventures for a new blockchain that uses bitcoin code but employs a new consensus model. Source.
  • Jumpstart CEO Ray Leach said at a recent conference that seven funds in Ohio could invest $100 million in startups using blockchain technology for business and government solutions. Source.
  • Silver Castle, cryptocurrency investment firm based in Israel, has launched two funds this month and will launch another with $50 million under management by year end. Source.
  • Bitwise launches two new crypto funds amidst greater client demand. Source.
  • Two Sigma and ConsenSys participate in $8 million raise by UK-based custody firm, Trustology. Source.

Regulation related

  • VanEck, SolidX, and the Cboe BZX Exchange met with the SEC last week to present their case for why the market is mature enough for a Bitcoin ETF. Source. The SEC has delayed the decision on the Van Eck/SolidX Bitcoin ETF again, to February 2019, the final deadline for deciding on the application. Source. Peter McCormack of What Bitcoin Did shares a timely podcast episode with Gabor Gurbacs of Van Eck on bringing a Bitcoin ETF to market. Source.
  • US Congressman, Warren Davidson, announced plans to create a bill that would legislate cryptocurrencies and ICOs as a new asset class. Source.
  • The US Government wants to use blockchain forensic analytics to trace illegal transactions in privacy coins like Zcash and Monero. Source.
  • Joyce Yang at Global Coin Research shared a fantastic summary of regulator stance on crypto and additional crypto market insights by country in Asia, specifically China, Korea, Japan, Singapore, Thailand, and India. Source.
  • South Korea's Ministry of Finance and ICT plans to develop an blockchain-based online voting system for voter authentication and result saving and begin trials in December. Source.
  • Seven EU countries (Malta, France, Spain, Italy, Cyprus, Greece and Portugal) form the "Mediterranean Seven" to promote the adoption of blockchain technology in multiple sectors including education, shipping, and healthcare, among others. Source.
  • In a speech in DC this week, Christine Lagarde, managing director of the IMF, said blockchain can help create safer systems in the long term. Source.

What we’re reading

  • Modeling Generalized Mining from a Fund's Perspective: A Livepeer Case Study. Vision Hill published an in-depth case study on Livepeer, which is a project that aims to deliver live video streaming in a decentralized, scalable way.
  • On Governance: Coordination, Layers, and Structural Integrity. Rocco from Alpine (a ConsenSys spoke focused on token economics) published a mammoth of a piece on base layer and token governance and the forces at play between a base layer with an informal governance process and a layer two with a formal governance process. He dives into the token governance mechanisms of Melon, 0x, Maker, and Aragon in this piece.
  • Uniswap-A Unique Exchange. In a deep-dive, Cyrus Younessi sheds light on decentralized exchange, Uniswap, which discards the limit order book model for an model that uses an automated market maker (AMM) algorithm.
  • Unpacking Bitcoin's Social Contract. Hasufly writes about Bitcoin as a response to the age-old desire for a social contract, that leverages technology to solve problems in past implementations.
  • SEC v. Etherdelta. Clean App breaks down the SEC's decision to go after an individual (Zachary Coburn) as opposed to the exchange, citing a Forbes article, "SEC's newly created cyber unit, Robert Cohn, exclusively told Forbes that using any blockchain to create an exchange without central operations doesn't remove the original creator's responsibility.

What we’re listening to

Circle in the news

Where we’ll be in December

  • Latin America Bit Conf., Santiago, Chile, 12/5-12/8
  • Bloomberg Crypto Summit, London, UK, 12/7
  • Blockchainer Forum 2018, Shanghai, CN, 12/7-12/8
  • TEDxWomen, Bologna, IT, 12/8
  • World Digital Asset Summit, San Francisco, CA, 12/9-12/11

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.